Stackelberg Equilibria in Monopoly Insurance Markets with Probability Weighting (opens in new tab)

arXiv:2602.16401v2 Announce Type: replace-cross Abstract: We study Stackelberg Equilibria (Bowley optima) in a monopolistic centralized sequential-move insurance market, with a profit-maximizing insurer who sets premia using a distortion premium principle, and a single policyholder who seeks to minimize a distortion risk measure. We show that equilibria are characterized as follows: In equilibrium, the optimal indemnity function exhibits a layer-type structure, providing full insurance over a...