IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Collusion in a One-Period Insurance Market with Adverse Selection

Listed author(s):
  • Willington Manuel

    ()

    (Universidad Adolfo Ibáñez)

  • Alegría Alexander

    ()

    (Pontificia Universidad Javeriana de Cali)

We show that collusive-seeming outcomes may occur in equilibrium in a one-period competitive insurance market characterized by adverse selection. We build on the Inderst and Wambach (2001) model and assume that insurance is compulsory and involves a minimum premium and minimum coverage; these are common features in many health systems. In this setup we show that there is a range of equilibria, from the zero profit one where low-risks implicitly subsidize high risks, to one where firms obtain profits with both types of consumers. Moreover, we show that rents only partially dissipate if we assume free entry. Along these equilibria, high risks always obtain full insurance, while the low risks' coverage decreases as the firms' profits increase.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.degruyter.com/view/j/bejeap.2012.12.issue-1/1935-1682.2592/1935-1682.2592.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 12 (2012)
Issue (Month): 1 (April)
Pages: 1-32

as
in new window

Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:14
Contact details of provider: Web page: https://www.degruyter.com

Order Information: Web: https://www.degruyter.com/view/j/bejeap

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Cummins, J. David & Rubio-Misas, Maria, 2006. "Deregulation, Consolidation, and Efficiency: Evidence from the Spanish Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 323-355, March.
  2. Claudio Agostini & Eduardo Saavedra & Manuel Willington, 2010. "Collusion Among Health Insurers in Chile: Good, Bad, and Ugly Reasons in a Split Decision," Antitrust Chronicle, Competition Policy International, vol. 7.
  3. Ronald D. Fischer & Pablo Serra, 1997. "Análisis económico del sistema de seguros de salud en Chile," Documentos de Trabajo 17, Centro de Economía Aplicada, Universidad de Chile.
  4. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  5. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
  6. Edmundo Beteta & Manuel Willington, 2009. "Planes Mínimos Obligatorios en Mercados de Seguros de Salud Segmentados," Estudios de Economia, University of Chile, Department of Economics, vol. 36(2 Year 20), pages 217-241, December.
  7. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
  8. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
  9. Hanweck, Gerald A. & Hogan, Arthur M. B., 1996. "The structure of the property/casualty insurance industry," Journal of Economics and Business, Elsevier, vol. 48(2), pages 141-155, May.
  10. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
  11. Peski, Marcin, 2010. "Generalized risk-dominance and asymmetric dynamics," Journal of Economic Theory, Elsevier, vol. 145(1), pages 216-248, January.
  12. William C. Hsiao & R. Paul Shaw, 2007. "Social Health Insurance for Developing Nations," World Bank Publications, The World Bank, number 6860, April.
  13. Smart, Michael, 2000. "Competitive Insurance Markets with Two Unobservables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 153-169, February.
  14. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
  15. Asheim, Geir B. & Nilssen, Tore, 1996. "Non-discriminating renegotiation in a competitive insurance market," European Economic Review, Elsevier, vol. 40(9), pages 1717-1736, December.
  16. Wholey, Douglas & Feldman, Roger & Christianson, Jon B. & Engberg, John, 1996. "Scale and scope economies among health maintenance organizations," Journal of Health Economics, Elsevier, vol. 15(6), pages 657-684, December.
  17. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325.
  18. Given, Ruth S., 1996. "Economies of scale and scope as an explanation of merger and output diversification activities in the health maintenance organization industry," Journal of Health Economics, Elsevier, vol. 15(6), pages 685-713, December.
  19. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 27-41.
  20. Krishnendu Dastidar, 2001. "Collusive outcomes in price competition," Journal of Economics, Springer, vol. 73(1), pages 81-93, February.
  21. Yin Choo Yap, 2009. "The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 4(1), pages 1-29, November.
  22. Lloyd-Sherlock, Peter, 2005. "Health sector reform in Argentina: a cautionary tale," Social Science & Medicine, Elsevier, vol. 60(8), pages 1893-1903, April.
  23. Arthur Snow, 2009. "On the Possibility of Profitable Self-Selection Contracts in Competitive Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(2), pages 249-259.
  24. 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.
  25. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
  26. Hellwig, Martin F., 1988. "A note on the specification of interfirm communication in insurance markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 46(1), pages 154-163, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.