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Facilitating Consumer Learning in Insurance Markets - What Are the Welfare Effects?

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  • Johan N. M. Lagerlöf

    (Department of Economics, Copenhagen University)

  • Christoph Schottmüller

    (Department of Economics, Tilburg University)

Abstract

What are the welfare effects of a policy that facilitates for insurance customers to privately and covertly learn about their accident risks? We endogenize the information structure in Stiglitz's classic monopoly insurance model. We first show that his results are robust: For a small information acquisition cost c, the consumer gathers information and the optimal contracts are close to the ones in the Stiglitz model. If c is so low that the consumer already gathers information (c

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 13-12.

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Length: 40 pages
Date of creation: 11 Nov 2013
Date of revision:
Handle: RePEc:kud:kuiedp:1312

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Keywords: asymmetric information; information acquisition; insurance; screening; adverse selection;

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  1. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 407-30, October.
  2. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Working Papers, University of Washington, Department of Economics 91-16, University of Washington, Department of Economics.
  3. Hoy, Michael & Polborn, Mattias, 2000. "The value of genetic information in the life insurance market," Journal of Public Economics, Elsevier, Elsevier, vol. 78(3), pages 235-252, November.
  4. Crémer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1996. "Strategic Information Gathering Before a Contract Is Offered," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 61, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Doherty, Neil A. & Thistle, Paul D., 1996. "Adverse selection with endogenous information in insurance markets," Journal of Public Economics, Elsevier, Elsevier, vol. 63(1), pages 83-102, December.
  6. Dezso Szalay, 2006. "Contracts with Endogenous Information," The Warwick Economics Research Paper Series (TWERPS) 780, University of Warwick, Department of Economics.
  7. Craswell, Richard, 1988. "Precontractual Investigation as an Optimal Precaution Problem," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 17(2), pages 401-36, June.
  8. 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.
  9. Cremer, Jacques & Khalil, Fahad, 1994. "Gathering information before the contract is offered: The case with two states of nature," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 675-682, April.
  10. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, Elsevier, vol. 16(2), pages 167-207, December.
  11. Leemore S. Dafny, 2010. "Are Health Insurance Markets Competitive?," American Economic Review, American Economic Association, American Economic Association, vol. 100(4), pages 1399-1431, September.
  12. Tom K. Lee, 1982. "Resource Information Policy and Federal Resource Leasing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 561-568, Autumn.
  13. Barzel, Yoram, 1977. "Some Fallacies in the Interpretation of Information Costs," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 20(2), pages 291-307, October.
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Cited by:
  1. Lagerlöf, Johan N. M. & Schottmüller, Christoph, 2013. "Monopoly Insurance with Endogenous Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9774, C.E.P.R. Discussion Papers.

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