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Imperfect Tests and Natural Insurance Monopolies

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  • Winand Emons

Abstract

In a housing insurance market buildings have different damage probabilities. High-risk houses need investment, low-risk houses don't. Insurers use imperfect tests to assess risks. The market is a natural monopoly: with more than one active insurer, high-risk house owners continue to apply to insurers until they are eventually assigned to the low-risk class. The natural monopoly need not be sustainable. In equilibrium the incumbent accommodates entry even when the natural monopoly is sustainable. We explain recent observations from Germany and Switzerland where damage rates and prices went up drastically after the transition from state monopolies to competitive environments. Copyright 2001 by Blackwell Publishing Ltd

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Bibliographic Info

Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp9704.

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Date of creation: Apr 1997
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Handle: RePEc:ube:dpvwib:dp9704

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Cited by:
  1. Xavier Freixas & Sjaak Hurkens & Alan D. Morrison & Nir Vulkan, 2004. "Interbank comptetition with costly screening," Economics Working Papers 802, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Arthur Charpentier & Benoît Le Maux, 2014. "Natural catastrophe insurance: How should the government intervene?," Post-Print halshs-01018022, HAL.

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