Risk-sharing in insurance is analyzed, with a view towards explaining the prevalence of deductibles. First we introduce, in a modern setting, the main concepts of the theory of risk-sharing in a group of agents. This theory we apply to the risk-sharing problem between an insurer and an insurance...

A standard result states that under decreasing absolute risk aversion the indifference premium of the insured is a decreasing function of wealth. This has been interpreted to mean that insurance is an inferior good, which has been considered as a puzzle in insurance theory, in particular since...