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When prices hardly matter: Incomplete insurance contracts and markets for repair goods

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Author Info
Nell, Martin
Richter, Andreas
Schiller, Jörg

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Abstract

This paper looks at markets characterized by the fact that the demand side is insured. In these markets, a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured's actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting, we discuss the interaction between insurance and repair markets by focusing, on one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers if repair markets are imperfect.

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Publisher Info
Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 3 (April)
Pages: 343-354
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Handle: RePEc:eee:eecrev:v:53:y:2009:i:3:p:343-354

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Related research
Keywords: Insurance Repair markets Incomplete contracts;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September. [Downloadable!] (restricted)
  2. Feldman, Roger & Dowd, Bryan, 1991. "A New Estimate of the Welfare Loss of Excess Health Insurance," American Economic Review, American Economic Association, vol. 81(1), pages 297-301, March.
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  4. Frech, H E, III & Ginsburg, Paul B, 1975. "Imposed Health Insurance in Monopolistic Markets: A Theoretical Analysis," Economic Inquiry, Oxford University Press, vol. 13(1), pages 55-70, March.
  5. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
  6. Kunreuther, Howard & Heal, Geoffrey, 2003. " Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-49, March-May. [Downloadable!] (restricted)
  7. Feldstein, Martin S, 1970. "The Rising Price of Physicians' Services," The Review of Economics and Statistics, MIT Press, vol. 52(2), pages 121-33, May. [Downloadable!] (restricted)
  8. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
  9. von Ungern-Sternberg, Thomas, 1996. "The limits of competition: Housing insurance in Switzerland," European Economic Review, Elsevier, vol. 40(3-5), pages 1111-1121, April. [Downloadable!] (restricted)
  10. Anderlini, Luca & Felli, Leonardo, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1085-1124, November. [Downloadable!] (restricted)
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  11. Feldstein, Martin S, 1971. "Hospital Cost Inflation: A Study of Nonprofit Price Dynamics," American Economic Review, American Economic Association, vol. 61(5), pages 853-72, December. [Downloadable!] (restricted)
  12. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M. [Downloadable!] (restricted)
  13. Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 2000. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 992-1005, October. [Downloadable!] (restricted)
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  14. Maskin, Eric, 2002. "On indescribable contingencies and incomplete contracts," European Economic Review, Elsevier, vol. 46(4-5), pages 725-733, May. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Martin Boyer & Jörg Schiller, 2003. "Merging Automobile Insurance Regulatory Bodies: The Case of Atlantic Canada," CIRANO Working Papers 2003s-70, CIRANO. [Downloadable!]
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