This paper presents a prospect theory-based model of insurance against mortality risk. The model accounts for five main puzzles from life insurance and annuity markets: under-annuitization; insufficient life insurance among the working age; excessive life insurance among the elderly; guarantee...

We study a principal-agent model with both moral hazard and adverse selection. Risk-neutral agents with limited liability have arbitrary private information about the distribution of outputs and the cost of effort. We obtain conditions under which the optimal mechanism offers a single contract...