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Competition between insurers with superior information

  • Villeneuve, Bertrand

We analyze markets where insurers are better informed about risk than consumers. We show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage. This explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable. We also show robustness to competition in menus or mechanisms. Our analysis of the “contrary of adverse selection” (competition between principals with common value and exclusivity) is suitable for other markets (lawyers, doctors, mechanics, etc.).

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File URL: http://www.sciencedirect.com/science/article/B6V64-48WB7R9-5/2/7ad58be2e75af30ea221353cf4a3c3b6
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 2 (February)
Pages: 321-340

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:2:p:321-340
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  2. Fagart, M.C., 1996. "Companies d'assurance informees et equilibre sur le marche de l'assurance," Papers 9626, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  3. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
  4. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
  5. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  6. Bertrand Villeneuve, 2000. "The Consequences for a Monopolistic Insurance Firm of Evaluating Risk Better than Customers: The Adverse Selection Hypothesis Reversed," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 25(1), pages 65-79, June.
  7. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  8. Hemenway, David, 1990. "Propitious Selection," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1063-69, November.
  9. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
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