AXIOMATIC CHARACTERIZATION OF INSURANCE PRICES

In this paper, we take an axiomatic approach to characterize insurance prices in a competitive market setting, We present four axioms to des cribe the behavior of market insurance prices. From these axioms it fo llows that the price of an insurance risk has a Choquet integral repre sentation with respect to a distorted probability (Yaari, 1987). We pr opose an additional axiom for reducing compound risks. This axiom dete rmines that the distortion function is a power function. (C) 1997 Else vier Science B.V.