Insurance Contracts Designed by Competitive Pooling
AbstractWe build a model of competitive pooling and show how insurance contracts emerge in equilibrium, designed by the invisible hand of perfect competition. When pools are exclusive, we obtain a unique separating equilibrium. When pools are not exclusive but seniority is recognized, we obtain a different unique equilibrium: the pivotal primary-secondary equilibrium. Here reliable and unreliable households take out a common primary insurance up to its maximum limit, and then unreliable households take out further secondary insurance.
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Bibliographic InfoPaper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 01-09.
Length: 39 pages
Date of creation: 2001
Date of revision:
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