Advantageous Selection in Insurance Market
AbstractThis paper reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision. Risk-tolerant individuals take few precautions and are disinclined to insure, but are drawn into a pooling equilibrium by the low premiums created by the presence of safer, more risk-averse types. Taxing insurance drives out the reckless clients, allowing a strict Pareto gain. This result depends on administrative costs in processing claims and issuing policies, as does the novel finding of a pure-strategy, partial-pooling, sub-game-perfect, Nash equilibrium in the insurance market.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0007.
Length: 27 pages
Date of creation: 2000
Date of revision:
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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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INFORMATION ; COMPETITION ; INSURANCE ; RISK;
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
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