Bernard et al. (2015) study an optimal insurance design problem where an individual's preference is of the rank-dependent utility (RDU) type, and show that in general an optimal contract covers both large and small losses. However, their contracts suffer from a problem of moral hazard for paying...

This paper investigates Pareto optimal (PO, for short) insurance contracts in a behavioral finance framework, in which the insured evaluates contracts by the rank-dependent utility (RDU) theory and the insurer uses the expected value premium principle. The incentive compatibility constraint is...