Multidimensional screening in a monopolistic insurance market
AbstractIn this paper, we consider a population of individuals who differ in two dimensions: their risk type (expected loss) and their risk aversion. We solve for the profit maximizing menu of contracts that a monopolistic insurer puts out on the market. First, we find that it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, we show that when the average man and woman differ only in risk aversion, gender discrimination may lead to a Pareto improvement.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011056.
Date of creation: 07 Dec 2011
Date of revision:
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insurance markets; asymmetric information; screening; gender discrimination; positive correlation test;
Other versions of this item:
- Pau Olivella & Fred Schroyen, 2012. "Multidimensional Screening in a Monopolistic Insurance Market," Working Papers 619, Barcelona Graduate School of Economics.
- Olivella, Pau & Schroyen, Fred, 2011. "Multidimensional screening in a monopolistic insurance market," Discussion Paper Series in Economics 19/2011, Department of Economics, Norwegian School of Economics.
- 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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