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Competition between insurers with superior information

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  • Villeneuve, Bertrand

Abstract

We analyze markets where insurers are better informed about risk than consumers. We show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage. This explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable. We also show robustness to competition in menus or mechanisms. Our analysis of the “contrary of adverse selection” (competition between principals with common value and exclusivity) is suitable for other markets (lawyers, doctors, mechanics, etc.).

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5356.

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Date of creation: 2005
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Publication status: Published in European economic review, 2005, Vol. 49, no. 2. pp. 321-340.Length: 19 pages
Handle: RePEc:dau:papers:123456789/5356

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Web page: http://www.dauphine.fr/en/welcome.html
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Related research

Keywords: Informed principals; Common value; Competition in mechanisms; Insurance markets; Adverse selection;

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References

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  1. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
  2. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
  3. Villeneuve, Bertrand, 2000. "The consequences for a monopolistic insurance firm of evaluating risk better than customers : The adverse selection hypothesis reversed," Economics Papers from University Paris Dauphine 123456789/5367, Paris Dauphine University.
  4. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  5. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  6. Fagart, M.C., 1996. "Companies d'assurance informees et equilibre sur le marche de l'assurance," Papers 9626, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  7. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
  8. Hemenway, David, 1990. "Propitious Selection," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1063-69, November.
  9. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Die allwissende Versicherung
    by Johannes Pennekamp in Fazit on 2014-05-22 07:27:11
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Cited by:
  1. Bond, Philip & Musto, David K. & Yilmaz, Bilge, 2009. "Predatory mortgage lending," Journal of Financial Economics, Elsevier, vol. 94(3), pages 412-427, December.
  2. Georges Dionne & Casey G. Rothschild, 2014. "Economic Effects of Risk Classification Bans," Cahiers de recherche 1420, CIRPEE.
  3. LG. Deidda & F. Adriani, 2010. "Competition and the signaling role of prices," Working Paper CRENoS 201012, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. Iossa, Elisabetta & Martimort, David, 2013. "Hidden Action or Hidden Information? How Information Gathering Shapes Contract Design," CEPR Discussion Papers 9552, C.E.P.R. Discussion Papers.
  5. Wu, T.C. Michael & Yang, C.C., 2012. "The welfare effect of income tax deductions for losses as insurance: Insured- versus insurer-sided adverse selection," Economic Modelling, Elsevier, vol. 29(6), pages 2641-2645.
  6. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche 1231, CIRPEE.
  7. Philip Bond & David K. Musto & Bilge Yilmaz, 2008. "Predatory mortgage lending," Working Papers 08-24, Federal Reserve Bank of Philadelphia.
  8. Deryugina, Tatyana, 2012. "Does Selection in Insurance Markets Always Favor Buyers?," MPRA Paper 53583, University Library of Munich, Germany.

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