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Insurance contracts with imprecise probabilities and adverse selection

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  • Meglena Jeleva

    ()

  • Bertrand Villeneuve

    ()

Abstract

This article deals with optimal insurance contracts in the framework of imprecise probabilities and adverse selection. Agents differ not only in the objective risk they face but also in the perception of risk. In monopoly, a range of configurations that VNM preferences preclude appears: a pooling contract may be optimal, incomplete coverage may be offered to high risks, low risks may be better covered. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s00199-003-0396-x
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 23 (2004)
Issue (Month): 4 (May)
Pages: 777-794

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Handle: RePEc:spr:joecth:v:23:y:2004:i:4:p:777-794

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Related research

Keywords: Imprecise probabilities; Insurance markets; Adverse selection.;

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References

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  1. 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 123456789/5367, Paris Dauphine University.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  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. Michael Landsberger & Isaac Meilijson, 1999. "A general model of insurance under adverse selection," Economic Theory, Springer, vol. 14(2), pages 331-352.
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Citations

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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. Ghossoub, Mario, 2010. "Belief heterogeneity in the Arrow-Borch-Raviv insurance model," MPRA Paper 37630, University Library of Munich, Germany, revised 22 Mar 2012.
  3. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
  4. : Kostas Koufopoulos & : Roman Kozhan, 2012. "Optimal Insurance under Advserse Selection and Ambiguity Aversion," Working Papers wpn12-07, Warwick Business School, Finance Group.
  5. Mouhamadou Fall, 2012. "Fiabilité des tests génétiques et architecture des contrats d'équilibre," Working Papers halshs-00751861, HAL.
  6. Emir Kamenica & Sendhil Mullainathan & Richard Thaler, 2011. "Helping Consumers Know Themselves," American Economic Review, American Economic Association, vol. 101(3), pages 417-22, May.
  7. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche 1231, CIRPEE.
  8. Arnold Chassagnon & Bertrand Villeneuve, 2005. "Optimal risk-sharing under adverse selection and imperfect risk perception," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 955-978, August.
  9. Rajeev K. Goel, 2006. "Insurance intermediaries and contractual relations," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(4), pages 211-215, July.
  10. DE FEO, Giuseppe & HINDRIKS, Jean, 2005. "Efficiency of competition in insurance markets with adverse selection," CORE Discussion Papers 2005054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Sandroni, Alvaro & Squintani, Francesco, 2013. "Overconfidence and asymmetric information: The case of insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 149-165.
  12. Anwar, Sajid & Zheng, Mingli, 2012. "Competitive insurance market in the presence of ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 79-84.

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