An Evolutionary Analysis of Insurance Markets
AbstractSince the seminal work by Rothschild and Stiglitz on competitive insurance markets under adverse selection the problem of non-existence of equilibrium has puzzled many economists. In this paper we approach this problem from an evo- lutionary point of view. In a dynamic model insurance companies remove loss- making contracts from the market and copy pro t-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 consti- tutes an equilibrium in the static framework, but also if it is not an equilibrium, provided that rms 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 9808.
Date of creation: Aug 1989
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Web page: http://www.univie.ac.at/vwl
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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- Wanda Mimra & Achim Wambach, 2011. "A Game-Theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection," CESifo Working Paper Series 3412, CESifo Group Munich.
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