The Consequences for a Monopolistic Insurance Firm of Evaluating Risk Better than Customers: The Adverse Selection Hypothesis Reversed
AbstractThis article models a situation in which a monopolistic insurer evaluates risk better than its customers. The resulting equilibrium allocations are compared to the consequences of the standard adverse selection hypothesis. On the positive side, they exhibit the property that low-risk people are better covered than higher-risk people. On the normative side, the article shows that there are two reasons for avoiding excessive risk classification: one is the classical destruction of insurance possibilities, and the other comes from the distrustful atmosphere generated by new asymmetric information. The Geneva Papers on Risk and Insurance Theory (2000) 25, 65–79. doi:10.1023/A:1008749524517
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.
Volume (Year): 25 (2000)
Issue (Month): 1 (June)
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Other versions of this item:
- Villeneuve, Bertrand, 2000. "The consequences for a monopolistic insurance firm of evaluating risk better than customers : The adverse selection hypothesis reversed," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/5367, Paris Dauphine University.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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