To commit or not to commit: A health insurance monopoly with variable quality and uncertain types of individuals
AbstractThis paper examines the trade-off between risk allocation and quality supply for an insurance monopolist when individuals face two kinds of risk related to health. First, they may suffer an ordinary monetary loss. Second, they are subject to uncertain premiums because their type may change. We assume that neither quality of insurance service,nor the individual type is verifiable in front of a court. We show that no-commitment is a necessary condition for the efficient supply of unverifiable quality while the insurance of premium risk requires commitment. Profit-maximizing contracts may involve full, partial or no- commitment. Risk allocation or quality supply is inefficient. --
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Bibliographic InfoPaper provided by University of Konstanz, Department of Economics in its series Discussion Papers, Series 1 with number 288.
Date of creation: 1997
Date of revision:
health insurance; premium risk; unverifiable quality; commitment;
Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- I10 - Health, Education, and Welfare - - Health - - - General
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