Open AccessThe Expected Utility Maximization Framework And The Demand and Supply For Retroactive Liability Insurance
Author(s) -
Jorge L. Urrutia
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v7i1.6262
Subject(s) - utility maximization , expected utility hypothesis , risk aversion (psychology) , actuarial science , maximization , liability , economics , settlement (finance) , microeconomics , business , financial economics , finance , payment , mathematical economics
The paper uses the expected utility of wealth maximization principle to establish the economic boundaries under which a market for retroactive liability insurance will develop. It is shown that the economic feasibility for the backdated insurance coverage is affected by the income tax rates, and the levels of risk aversion of the potential insurer and insured and by the time to settlement. However, the potential insurers tax rate is more relevant than the other parameters.