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Risk Management and the Value of Symmetric Information in Insurance Markets

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  • Hoy, Michael

Abstract

The introduction of symmetric information that allows for the costless classification of consumers according to risk type induces insurance companies to charge each consumer a risk class specific rate, thus creating premium risk. If firms are risk averse or face a costly-to-maintain solvency constraint, then such information allows firms to organize their portfolios more efficiently and so lowers the average cost of insurance. An assessment of the impact of such information on social welfare involves trading off these beneficial efficiency effects against the adverse distributional consequences of premium risk. Copyright 1988 by The London School of Economics and Political Science.

Suggested Citation

  • Hoy, Michael, 1988. "Risk Management and the Value of Symmetric Information in Insurance Markets," Economica, London School of Economics and Political Science, vol. 55(219), pages 355-364, August.
  • Handle: RePEc:bla:econom:v:55:y:1988:i:219:p:355-64
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    Cited by:

    1. Schwarze, Reimund & Wein, Thomas, 2005. "Is the market classification of risk always efficient? Evidence from German third party motor insurance," German Risk and Insurance Review (GRIR), University of Cologne, Department of Risk Management and Insurance, vol. 1(4), pages 173-202.
    2. Huennemeyer, Anne-Juliane & Rollins, Kimberly S., 2001. "Private Resource Management And Public Trust: Optimal Resource Conservation Contracts Under Asymmetric Information," Working Papers 34141, University of Guelph, Department of Food, Agricultural and Resource Economics.
    3. Oliver Fabel, 1995. "Disability insurance in an optimal pension scheme," Journal of Economics, Springer, vol. 62(2), pages 157-183, June.

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