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Moral Hazard, Insurance and Some Collusion

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Author Info
Ching-to Albert Ma
Ingela Alger

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Abstract

A risk-averse consumer purchases an insurance policy, if she suffers a loss, she may receive services from a provider to recover some of the loss. Only the consumer and the provider know if the loss has actually occurred. The providers behaviour is uncertain. With some positive probability, the provider is honest, reporting the loss information truthfully to the insurer, with the complementary probability, the provider reports, the information strategically, by writing a side-contract with the consumer to maximise the joint surplus of the provider-consumer coalition. We show there is a loss of generality in considering only collusion-proof contracts, and characterise equilibria implemented by collusion-proof and noncollusion-proof contracts. When the probability of a provider acting collusively is small, the equilibrium contract is not collusion-proof but approximately first-best. When the probability of a provider acting collusively is large, the equilibrium contract is independent of this probability and identical to the equilibrium collusion-proof contract when the provider is collusive with probability 1.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp318.

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Date of creation: Mar 1999
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Handle: RePEc:fmg:fmgdps:dp318

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  1. Stefano Demichelis & Jörgen Weibull, 2009. "Language, meaning and games A model of communication, coordination and evolution," Working Papers hal-00354224_v1, HAL. [Downloadable!]
    Other versions:
  2. Hitoshi Matsushima, 2003. "Implementation and Preference for Honesty," CIRJE F-Series CIRJE-F-244, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  3. Demichelis, Stefano & Weibull, Jörgen, 2006. "Efficiency, communication and honesty," Working Paper Series in Economics and Finance 645, Stockholm School of Economics, revised 28 Nov 2006. [Downloadable!]
  4. M. Martin Boyer & Jörg Schiller, 2003. "Merging Automobile Insurance Regulatory Bodies: The Case of Atlantic Canada," CIRANO Working Papers 2003s-70, CIRANO. [Downloadable!]
  5. Liu, Ting, 2006. "Credence Goods Markets with Conscientious and Selfish Experts," MPRA Paper 1106, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Hitoshi Matsushima, 2002. "Honesty-Proof Implementation," CIRJE F-Series CIRJE-F-178, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  7. Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004. [Downloadable!]
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  8. Gary Biglaiser & Ching-to Albert Ma, 2006. "Moonlighting: Public Service and Private Practice," Working Papers 12, Portuguese Competition Authority. [Downloadable!]
    Other versions:
  9. Rejesus, Roderick M. & Little, Bertis B. & Lovell, Ashley C. & Cross, Mike & Shucking, Michael, 2004. "Patterns of Collusion in the U.S. Crop Insurance Program: An Empirical Analysis," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), August. [Downloadable!]
  10. Hitoshi Matsushima, 2004. "Non-Consequential Moral Preferences, Detail-Free Implementation, and Representative Systems," CIRJE F-Series CIRJE-F-304, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  11. repec:att:wimass:1920123 is not listed on IDEAS
  12. F. Barigozzi, 2003. "Prices vs. Quantities in Health Insurance Reimbursement," Working Papers 499, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  13. Stephanie Rosenkranz & Patrick W. Schmitz, 2005. "Reserve prices in auctions as reference points," Bonn Econ Discussion Papers bgse24_2005, University of Bonn, Germany. [Downloadable!]
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  14. Hitoshi Matsushima, 2003. "Universal Mechanisms and Moral Preferences in Implementation," CIRJE F-Series CIRJE-F-254, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  15. Elchanan Ben-Porath & Barton L. Lipman, 2009. "Implementation and Partial Provability," Boston University - Department of Economics - Working Papers Series wp2009-002, Boston University - Department of Economics. [Downloadable!]
  16. Francesca Barigozzi, 2006. "Price vs. quantity in health insurance reimbursement," International Journal of Health Care Finance and Economics, Springer, vol. 6(3), pages 191-213, September. [Downloadable!] (restricted)
  17. Ingela Alger & Regis Renault, 2000. "Screening Ethics when Honest Agents Care about Fairness," Boston College Working Papers in Economics 489, Boston College Department of Economics, revised 09 Nov 2004. [Downloadable!]
    Other versions:
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