An Evolutionary Analysis of Insurance Markets under Adverse Selection
AbstractSince the seminal work by Rothschild and Stiglitz on competitive insurance markets under adverse selection the problem of non-existence of equilibrium hat puzzled many economists. In this paper we approach this problem from an evolutionary point of view. In a dynamic model insurance companies remove lossmaking contracts from the market and copy profit making ones. Occasionally, they also experiment, adding new contracts or removing current ones arbitrarily. We show that the Rothschild-Stiglitz outcome arises in the long run if it cinstitutes an equilibrium in the static framework, but also if it is not an equilibrium, provides that firms only experiment with contracts in the vicinity of their current portfolio.
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Bibliographic InfoPaper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 9801.
Date of creation: Nov 1998
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Web page: http://www.univie.ac.at/vwl
Other versions of this item:
- Ania, A.B. & Troger, T. & Wambach, A., 1998. "An Evolutionary Analysis of Insurance Markets Under Adverse Selection," Papers 9808, Washington St. Louis - School of Business and Political Economy.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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- Inderst, Roman & Wambach, Achim, 1999.
"Competitive Insurance Markets Under Adverse Selection and Capacity Constraints,"
CEPR Discussion Papers
2269, C.E.P.R. Discussion Papers.
- Inderst, Roman & Wambach, Achim, 2001. "Competitive insurance markets under adverse selection and capacity constraints," European Economic Review, Elsevier, vol. 45(10), pages 1981-1992, December.
- Alos-Ferrer, Carlos & Ania, Ana B., 2001. "Local equilibria in economic games," Economics Letters, Elsevier, vol. 70(2), pages 165-173, February.
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