Insurance, adverse selection, and cream-skimming

Article Abstract:

A research study examines optimal insurance policies in a scenario where certain people have perfect information on a plan's benefits while others have imperfect knowledge about likely benefits. The optimal insurance policy is found to have a simple linear form. Full insurance is provided for the smallest and the largest wealth realizations. However, several intermediate wealth realizations are not given any insurance. Both dynamic settings and endogenous information acquisition settings are found to support the optimal insurance policy.

Insurance, Insurance Carriers and Related Activities, INSURANCE CARRIERS, Analysis, Economic research, Insurance policies

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Incentives for conservation and quality-improvement by public utilities

Article Abstract:

Research was conducted to study how incentive programs motivated regulated public utilities to provide such basic services as local telephone service and enhanced services such as faster voice communication. The research indicated that the optimal regulatory programs differed greatly, depending on what information the regulators had. Utilities could be motivated to supply enhanced services through the distortion of basic service in relation to marginal cost.

Economic aspects, Public utilities, Industry regulations, Government regulation of business, Trade regulation

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Optimal capital structure in agency relationships

Article Abstract:

The role of capital structure in agency relationships is examined. A model of this structure shows that an inverse relationship exists between the amount of the principal's aversion to risk and the choice among incentive schemes that she will furnish the agent. The model puts the principal on the advantage since the agent's capital structure is under her command, making the latter a prime factor in considering the value of the agency relationship.

Agency (Law), Agency theory, Capital

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