Minimum Coverage Regulation in Insurance Markets
AbstractWe study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single firm monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, "subsidize" insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all firms just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions.
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Bibliographic InfoPaper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 301.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-16 (All new papers)
- NEP-CDM-2013-08-16 (Collective Decision-Making)
- NEP-CTA-2013-08-16 (Contract Theory & Applications)
- NEP-IAS-2013-08-16 (Insurance Economics)
- NEP-MIC-2013-08-16 (Microeconomics)
- NEP-SPO-2013-08-16 (Sports & Economics)
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