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Linear Prices Equilibria and Nonexclusive Insurance Market

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Author Info

  • Frédéric Loss

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CNAM Paris - Conservatoire National des Arts et Métiers - Conservatoire National des Arts et Métiers (CNAM))

  • Gwanaël Piaser

    (IPAG - Business School)

Abstract

We consider a competitive insurance market in which agents can privately enter into multicontractual insurance relationships and undertake hidden actions. We study the existence of linear equilibria when insurance companies do not have any restriction on their pricing rules. We provide conditions under which a linear equilibrium exists. We show that two different types of linear equilibria could exist: A first one in which insurance companies make zero expected profits, and a second one in which they make strictly positive expected profits. We also analyze the welfare properties of the linear equilibria. We show that they are not always second best Pareto optimal.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00870113.

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Date of creation: 05 Oct 2013
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Handle: RePEc:hal:wpaper:hal-00870113

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Related research

Keywords: Common Agency; Insurance; Moral Hazard; Perfect Competition; Linear Prices Equilibria;

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References

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  1. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 44-62, February.
  2. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1311-1328, December.
  3. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn.
  4. 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, MIT Press, vol. 90(4), pages 630-49, November.
  5. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
  6. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  7. Andrea Attar & Arnold Chassagnon, 2006. "On moral hazard and nonexclusive contracts," PSE Working Papers halshs-00589101, HAL.
  8. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
  9. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 90(3), pages 383-413.
  10. Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, Elsevier, vol. 10(1), pages 8-23, February.
  11. Laurence Ales, 2009. "Adverse Selection and Non-exclusive Contracts," 2009 Meeting Papers, Society for Economic Dynamics 854, Society for Economic Dynamics.
  12. Laurence Ales & Pricila Maziero, 2009. "Adverse Selection and Non-Exclusive Contracts," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2010-E61, Carnegie Mellon University, Tepper School of Business.
  13. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
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Cited by:
  1. Frederic Teulon, 2014. "A propos de Walras et de la théorie de l’équilibre général," Working Papers, Department of Research, Ipag Business School 2014-556, Department of Research, Ipag Business School.
  2. Olfa Bouasker & Jean-Luc Prigent, 2014. "Corporate Investment Choice and Exchange Option between Production Functions," Working Papers, Department of Research, Ipag Business School 2014-511, Department of Research, Ipag Business School.
  3. Frederic Teulon, 2014. "Ce que nous devons à Paul Samuelson (1915-2009)," Working Papers, Department of Research, Ipag Business School 2014-560, Department of Research, Ipag Business School.
  4. Farid Mkaouar & Jean-Luc Prigent, 2014. "Constant Proportion Portfolio Insurance Effectiveness with Transaction Costs," Working Papers, Department of Research, Ipag Business School 2014-509, Department of Research, Ipag Business School.
  5. Frederic Teulon, 2014. "Kenneth Arrow et les préférences collectives," Working Papers, Department of Research, Ipag Business School 2014-457, Department of Research, Ipag Business School.
  6. Frederic Teulon, 2014. "Daniel Kahneman, un psychologue en territoire économique," Working Papers, Department of Research, Ipag Business School 2014-572, Department of Research, Ipag Business School.
  7. Frederic Teulon, 2014. "George Stigler : combat pour la déréglementation," Working Papers, Department of Research, Ipag Business School 2014-570, Department of Research, Ipag Business School.
  8. Naceur Naguez & Jean-Luc Prigent, 2014. "Kappa Performance Measures with Johnson Distributions," Working Papers, Department of Research, Ipag Business School 2014-510, Department of Research, Ipag Business School.
  9. Frederic Teulon, 2014. "La critique de Lucas : Robert Lucas et la politique économique," Working Papers, Department of Research, Ipag Business School 2014-567, Department of Research, Ipag Business School.

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