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Multidimensional screening in a monopolistic insurance market

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  • Olivella, Pau

    ()
    (Universitat Autonóma de Barcelona)

  • Schroyen, Fred

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

In this paper, we consider a population of ndividuals who differ in two dimensions: their risk type (expected loss) and their risk aversion. We solve for the profit maximizing menu of contracts that a monopolistic insurer puts out on the market. First, we …nd that it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, we show that when the average man and woman differ only in risk aversion, gender discrimination may lead to a Pareto improvement.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 19/2011.

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Length: 44 pages
Date of creation: 02 Nov 2011
Date of revision:
Handle: RePEc:hhs:nhheco:2011_019

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Keywords: insurance markets; asymmetric information; screening; gender discrimination; positive correlation test.;

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  1. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
  2. Catherine C. Eckel & Philip J. Grossman, 2008. "Sex and Risk: Experimental Evidence," Development Research Unit Working Paper Series archive-09, Monash University, Department of Economics.
  3. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
  4. Philippe De Donder & Jean Hindriks, 2007. "Equilibrium social insurance with policy-motivated parties," Working Papers 13446, Institut National de la Recherche Agronomique, France.
  5. Villeneuve, Bertrand, 2003. "Concurrence et antisélection multidimensionnelle en assurance," Economics Papers from University Paris Dauphine 123456789/5370, Paris Dauphine University.
  6. Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2007. "Imputing Risk Tolerance from Survey Responses," NBER Working Papers 13337, National Bureau of Economic Research, Inc.
  7. Nick Netzer & Florian Scheuer, 2010. "Competitive screening in insurance markets with endogenous wealth heterogeneity," Economic Theory, Springer, vol. 44(2), pages 187-211, August.
  8. Jullien, Bruno & Salanié, Bernard & Salanié, François, 2001. "Screening Risk Averse Agents Under Moral Hazard," CEPR Discussion Papers 3076, C.E.P.R. Discussion Papers.
  9. Pau Olivella & Marcos Vera-Hernández, 2006. "Testing for Asymmetric Information in Private Health Insurance," Working Papers 246, Barcelona Graduate School of Economics.
  10. Cutler, David & McGarry, Kathleen & Finkelstein, Amy, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," Scholarly Articles 2640581, Harvard University Department of Economics.
  11. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc.
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