Home » Sovereign Insurance and Program Design: What Is Optimal for the Sovereign? by Miguel Messmacher
Sovereign Insurance and Program Design: What Is Optimal for the Sovereign? Miguel Messmacher

Sovereign Insurance and Program Design: What Is Optimal for the Sovereign?

Miguel Messmacher

Published May 9th 2014
ISBN : 9781283515580
ebook
30 pages
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 About the Book 

The design of the optimal sovereign insurance contract is analyzed when: the sovereign chooses the contract- effort is not contractible- shocks are of uncertain magnitude- the sovereign can save- and the sovereign can default. Under these conditions:MoreThe design of the optimal sovereign insurance contract is analyzed when: the sovereign chooses the contract- effort is not contractible- shocks are of uncertain magnitude- the sovereign can save- and the sovereign can default. Under these conditions: i) an ex ante premium leads to higher coverage- ii) the premium increases with the sovereigns incentive to take risks- iii) a deductible is chosen to limit moral hazard- iv) the deductible-to-support ratio is decreasing with the size of the realized shock- and v) the change in the choice of savings when insurance is available is ambiguous, as there is a trade-off between inducing higher effort and increasing the likelihood of default.