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Search, Moral Hazard, and Price Dispersion

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Author Info
S. Nuray Akin () (Department of Economics, University of Miami)
Brennan C. Platt () (Department of Economics, Brigham Young University)

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Abstract

We study the effects of insurance coverage on consumer search behavior and the pricing of services covered by insurance, constructing a general equilibrium model of moral hazard in search with an endogenous price distribution. When an insured event occurs, households request quotes from firms, who offer a homogenous service at various prices. We show that lower coinsurance rates reduce the amount of search by households, allowing firms to increase their prices. Hence, moral hazard in search is far more costly than shown in previous models, which ignored equilibrium firm response to changes in consumer search behavior.

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File URL: http://moya.bus.miami.edu/~nakin/Moral_Hazard_in_Search.pdf
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Publisher Info
Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0711.

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Length: 20 pages
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Handle: RePEc:mia:wpaper:0711

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Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

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This page was last updated on 2009-12-15.

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