When prices hardly matter: Incomplete insurance contracts and markets for repair goods
AbstractThis 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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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 53 (2009)
Issue (Month): 3 (April)
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Insurance Repair markets Incomplete contracts;
Other versions of this item:
- Martin Nell & Andreas Richter & Jörg Schiller, 2005. "When prices hardly matter: Incomplete insurance contracts and markets for repair goods," Risk and Insurance 0501002, EconWPA.
- Nell, Martin & Richter, Andreas & Schiller, Jörg, 2006. "When prices hardly matter: Incomplete insurance contracts and markets for repair goods," Discussion Papers in Business Administration 1187, University of Munich, Munich School of Management.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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