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"Private-Information Insurance Contracts in Continuous Time"

Bart Taub


First Author :

Bart Taub
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820

Abstract :
A continuous-time private-information insurance contract is analyzed. The special case analyzed is equivalent to a credit equilibrium. Defection from the contract and its equivalent credit equilibrium using smooth-pasting methods is analyzed. The contract and its equivalent standard credit equilibrium cannot be made immune to defection. Immunity from defection can be reinstated by constructing a constrained insurance contract as described in [3], but the insurance value provided is reduced below that of the full-information case.
Manuscript Received : 2001
Manuscript Published : 2001
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