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Competition between insurers with superior information

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  • Villeneuve, Bertrand

Abstract

We analyze markets where insurers are better informed about risk than consumers. We show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage. This explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable. We also show robustness to competition in menus or mechanisms. Our analysis of the “contrary of adverse selection” (competition between principals with common value and exclusivity) is suitable for other markets (lawyers, doctors, mechanics, etc.).

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File URL: http://www.sciencedirect.com/science/article/B6V64-48WB7R9-5/2/7ad58be2e75af30ea221353cf4a3c3b6
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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 2 (February)
Pages: 321-340

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:2:p:321-340

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Web page: http://www.elsevier.com/locate/eer

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References

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  1. Hemenway, David, 1990. "Propitious Selection," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1063-69, November.
  2. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  3. Fagart, M.C., 1996. "Companies d'assurance informees et equilibre sur le marche de l'assurance," Papers 9626, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  4. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  5. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  6. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  7. Kyle Bagwell & Garey Ramey, 1989. "Oligopoly Limit Pricing," Discussion Papers 829, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
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Cited by:
  1. Iossa, Elisabetta & Martimort, David, 2013. "Hidden Action or Hidden Information? How Information Gathering Shapes Contract Design," CEPR Discussion Papers 9552, C.E.P.R. Discussion Papers.
  2. Philip Bond & David K. Musto & Bilge Yilmaz, 2008. "Predatory mortgage lending," Working Papers 08-24, Federal Reserve Bank of Philadelphia.
  3. Adriani, Fabrizio & Deidda, Luca G., 2011. "Competition and the signaling role of prices," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 412-425, July.
  4. Bond, Philip & Musto, David K. & Yilmaz, Bilge, 2009. "Predatory mortgage lending," Journal of Financial Economics, Elsevier, vol. 94(3), pages 412-427, December.
  5. Wu, T.C. Michael & Yang, C.C., 2012. "The welfare effect of income tax deductions for losses as insurance: Insured- versus insurer-sided adverse selection," Economic Modelling, Elsevier, vol. 29(6), pages 2641-2645.
  6. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche 1231, CIRPEE.
  7. Deryugina, Tatyana, 2012. "Does Selection in Insurance Markets Always Favor Buyers?," MPRA Paper 53583, University Library of Munich, Germany.

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