Adverse Selection and Non-Exclusive Contracts
AbstractThis paper studies the Rothschild and Stiglitz (1976) adverse selection environment, relaxing the assumption of exclusivity of insurance contracts. Agents can engage in multiple insurance contracts simultaneously, and the terms of these contracts are not observed by other firms. Insurance providers behave non-cooperatively and compete offering menus of insurance contracts from an unrestricted contract space. We de- rive conditions under which a separating equilibrium exists and fully characterize it. The unique equilibrium allocation consists of agents with a lower probability of acci- dent purchasing no insurance and agents with higher accident probability buying the actuarially-fair level of insurance. The equilibrium allocation also constitutes a linear price schedule for insurance. To sustain the equilibrium allocation, firms must offer latent contracts. These contracts are necessary to prevent deviations by other firms; in particular they can prevent cream-skimming strategies. As in Rothschild and Stiglitz (1976), pooling equilibrium still fails to exists.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2010-E61.
Date of creation: Dec 2009
Date of revision:
Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Gerald D. Jaynes, 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Levine's Working Paper Archive 786969000000000243, David K. Levine.
- Han, Seungjin, 2011.
"Implicit Collusion in Non-Exclusive Contracting under Adverse Selection,"
Microeconomics.ca working papers
seungjin_han-2011-10, Vancouver School of Economics, revised 02 Apr 2013.
- Seungjin Han, 2012. "Implicit Collusion in Non-Exclusive Contracting under Adverse Selection," Department of Economics Working Papers 2012-15, McMaster University, revised Apr 2013.
- Philip Bond & Yaron Leitner, 2012. "Market run-ups, market freezes, inventories, and leverage," Working Papers 12-8, Federal Reserve Bank of Philadelphia.
- Philip Bond & Yaron Leitner, 2013. "Market run-ups, market freezes, inventories, and leverage," Working Papers 13-14, Federal Reserve Bank of Philadelphia, revised 04 Feb 2014.
- Frédéric Loss & Gwanaël Piaser, 2013.
"Linear Prices Equilibria and Nonexclusive Insurance Market,"
- Frédéric Loss & Gwenaël Piaser, 2014. "Linear Prices Equilibria and Nonexclusive Insurance Market," Working Papers 2014-042, Department of Research, Ipag Business School.
- Jaynes, Gerald D., 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Working Papers 91, Yale University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear).
If references are entirely missing, you can add them using this form.