Insurance monopoly and renegotiation (*)
AbstractThe mechanism design problem of a monopoly insurer - faced with privately informed insurees - is considered. It is assumed that the insurer cannot commit not to renegotiate (by using the information that customer separa-tion reveals) before contracts are put into force. A solution is offered by modeling renegotiation-proofness in a framework inspired by Greenberg's theory of social situations. Maximizing profit within the set of renegotiation-proof outcomes always leads to a semi-separating outcome (i.e. neither full pooling nor full separation can occur) and may leave all low-risks as well as some of the high-risks self-insured.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 9 (1997)
Issue (Month): 2 ()
Note: Received: March 1, 1994; revised version September 16, 1995
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
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- Krasa, Stefan, 1999. "Unimprovable Allocations in Economies with Incomplete Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 144-168, July.
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