An Essay on the Subjective Valuation of an Incentive System in an Insurance Market Cover Image
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An Essay on the Subjective Valuation of an Incentive System in an Insurance Market
An Essay on the Subjective Valuation of an Incentive System in an Insurance Market

Author(s): Okura Mahito, Hiroyuki Nozaki
Subject(s): Economy, Business Economy / Management, Accounting - Business Administration
Published by: ASERS Publishing
Keywords: Loss prevention; Incentive system; Subjective valuation; Insurance premium discount;Book price discount

Summary/Abstract: This study discusses two discount systems, namely, the insurance premium discount system, where the policy holder's valuation is objective, and the book price discount system, where the policy holder's valuation is subjective. The main purpose of this study is to compare these discount systems and show the conditions under which each discount system is chosen by an insurance firm. The main conclusions of this study are as follows. First, the insurance firm chooses the book price discount (insurance premium discount) system if the policy holder's disutility of loss prevention effort is relatively high (low). Second, the insurance firm chooses the book price discount system when the initial wealth and maximum subjective valuation of the book price discount are large. The insurance firm also chooses the book price discount system when the insurance premium, the amount of damage and effect of the loss prevention effort are small.

  • Issue Year: II/2016
  • Issue No: 2(3)
  • Page Range: 7-18
  • Page Count: 11
  • Language: English