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Repeated Insurance Contracts with Adverse Selection and Limited Commitment

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  • Hosios, Arthur J
  • Peters, Michael

Abstract

In this paper, the authors describe the sequential equilibria of a two-period monopoly with asymmetric information and limited commitment in the market for accident insurance. The role of learning is analyzed, and the possible sequential pooling, semiseparating, and separating equilibria are described (where the probability that a buyer will make a revealing first-period contract choice is equal to zero, is positive, and is equal to one, respectively). In the absence of discounting, the authors show that only pooling and semiseparating equilibria exist; provide a limited characterization of when these equilibria occur; and show that accident-contingent insurance and accident underreporting occur with positive probability along the equilibrium path of the game. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 104 (1989)
Issue (Month): 2 (May)
Pages: 229-53

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Handle: RePEc:tpr:qjecon:v:104:y:1989:i:2:p:229-53

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Nilssen, Tore, 2000. "Consumer lock-in with asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 641-666, May.
  2. repec:ebl:ecbull:v:4:y:2008:i:18:p:1-8 is not listed on IDEAS
  3. Vazquez, Francisco J. & Watt, R., 1999. "A theorem on multi-period insurance contracts without commitment," Insurance: Mathematics and Economics, Elsevier, vol. 24(3), pages 273-280, May.
  4. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
  5. Shahid Ebrahim, M. & Hussain, Sikandar, 2010. "Financial development and asset valuation: The special case of real estate," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 150-162, January.
  6. Shiller, Robert J. & Wojakowski, RafaƂ M. & Ebrahim, M. Shahid & Shackleton, Mark B., 2013. "Mitigating financial fragility with Continuous Workout Mortgages," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 269-285.
  7. M. Shahid Ebrahim & Seema Makhdoomi & Mustapha Sheikh, 2012. "The Political Economy and the Perennial Underdevelopment of the Muslim World," Working Papers 12011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  8. Tim Friehe, 2008. "Insurance, Pooling, and Resistance to Reform: The Case of Individual Uncertainty," Economics Bulletin, AccessEcon, vol. 4(18), pages 1-8.
  9. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

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