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Prevention in insurance markets

Author

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  • Marie-Cécile Fagart
  • Bidénam Kambia-Chopin

Abstract

This paper considers a competitive insurance market under moral hazard and adverse selection, in which preventive efforts and self-protection costs are unobservable by insurance companies. Under reasonable assumptions, the conclusions of Rothschild and Stiglitz (1976) are preserved in our context even if it involves moral hazard. The riskier agents in equilibrium, who would also be the riskier agents under perfect information, receive their moral hazard contract. For other agents, adverse selection reduces coverage, increasing likewise their preventive effort with respect to the hidden-action situation.

Suggested Citation

  • Marie-Cécile Fagart & Bidénam Kambia-Chopin, 2006. "Prevention in insurance markets," Annals of Economics and Statistics, GENES, issue 82, pages 55-70.
    • Handle: RePEc:adr:anecst:y:2006:i:82:p:55-70
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    File URL: http://www.jstor.org/stable/20079151
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    Cited by:

    1. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona School of Economics.
    2. Hoel, Michael & Iversen, Tor & Nilssen, Tore & Vislie, Jon, 2006. "Genetic testing in competitive insurance markets with repulsion from chance: A welfare analysis," Journal of Health Economics, Elsevier, vol. 25(5), pages 847-860, September.
    3. Vickie Bajtelsmit & Paul D. Thistle, 2008. "The Reasonable Person Negligence Standard and Liability Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 815-823, December.

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