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Multidimensional screening in a monopolistic insurance market

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  • OLIVELLA, Pau

    (Departament d’Economia i d’Historia Economica and CODE, Universitat Autonoma de Barcelona, Spain)

  • SCHROYEN, Fred

    (Department of Economics, NHH Norwegian School of Economics, Bergen and HEB)

Abstract

In 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.

Suggested Citation

  • OLIVELLA, Pau & SCHROYEN, Fred, 2011. "Multidimensional screening in a monopolistic insurance market," LIDAM Discussion Papers CORE 2011056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2011056
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    References listed on IDEAS

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    Cited by:

    1. Barigozzi, Francesca & Burani, Nadia, 2016. "Competition and screening with motivated health professionals," Journal of Health Economics, Elsevier, vol. 50(C), pages 358-371.
    2. Bardey, David & Buitrago, Giancarlo, 2015. "Voluntary Health Plan Subsidies and Public Expenditure," TSE Working Papers 15-605, Toulouse School of Economics (TSE).
    3. Rachel J. Huang & Arthur Snow & Larry Y. Tzeng, 2017. "Advantageous Selection in Insurance Markets with Compound Risk," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(2), pages 171-192, September.
    4. Chen, An & Li, Hong & Schultze, Mark, 2022. "Collective longevity swap: A novel longevity risk transfer solution and its economic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 227-249.

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    More about this item

    Keywords

    insurance markets; asymmetric information; screening; gender discrimination; positive correlation test;
    All these keywords.

    JEL classification:

    • 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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