It is well known that when agents are fully rational, compulsory public insurance may make all agents better off in the Rothschild and Stiglitz (1976) model of insurance markets. We find that when sufficiently many agents underestimate their personal risks, compulsory insurance makes low-risk agents worse off. Hence, behavioral biases may weaken some of the well-established rationales for government intervention based on asymmetric information. (JEL D82, G22)
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Volume (Year): 97 (2007) Issue (Month): 5 (December) Pages: 1994-2004 Download reference. The following formats are available: HTML
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Benoît, Jean-Pierre & Dubra, Juan, 2008.
"Overconfidence?,"
MPRA Paper
8879, University Library of Munich, Germany.
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Benoît, Jean-Pierre & Dubra, Juan, 2007.
"Overconfidence?,"
MPRA Paper
6017, University Library of Munich, Germany, revised Nov 2007.
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