

Preface.................................................................................................................. 3
Contents ................................................................................................................5
1. Introduction....................................................................................................... 9
2. Insurance: basic notions ....................................................................................11
2.1 Uncertainty and lotteries
2.2 Money lotteries and attitudes to risk
2.3 Certainty equivalent and the risk premium
2.4 Insurance: basic concepts
2.5 Isoprofit lines
2.6 Profitable insurance requires risk aversion
2.7 Exercises [24 exercises]
2.8 Solutions to exercises
3. Expected Utility.......................................................................................... 49
3.1 Expected utility: theorems
3.2 Expected utility: the axioms
3.3 Exercises [10 exercises]
3.4 Solutions to exercises
4. Money lotteries revisited .................................................................................73
4.1 von Neumann Morgenstern preferences over
money lotteries
4.2 Measures of risk aversion
4.3 Some noteworthy utility functions
4.4 Higher risk
4.5 Exercises [20 exercises]
4.6 Solutions to exercises
5. Insurance: Part 2 ................................................................................. 107
5.1 Binary lotteries and indifference curves
5.2 Back to insurance
5.3 Choosing from a menu of contracts
5.4 Mutual insurance
5.5 Exercises [19 exercises]
5.6 Solutions to exercises
6. Insurance and moral hazard .................................................................................. 157
6.1 Moral hazard or hidden action
6.2 Two levels of unobserved effort
6.3 The reservation utility locus
6.4 The profitmaximizing contract for a monopolist
6.5 Exercises [7 exercises]
6.6 Solutions to exercises
7. Insurance and adverse selection .................................................................................... 183
7.1 Adverse selection or
hidden type
7.2 Two types of
customers
7.3 The monopolist under asymmetric information
7.4 A perfectly competitive insurance industry
7.5 Exercises [9 exercises]
7.6 Solutions to exercises