When prices hardly matter: Incomplete insurance contracts and markets for repair goods
This paper looks at markets characterized by the fact that the demand side is insured. In these markets, a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured's actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting, we discuss the interaction between insurance and repair markets by focusing, on one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers if repair markets are imperfect.
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.
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.
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.:
- Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
- Luca Anderlini & Leonardo Felli, 1994.
"Incomplete Written Contracts: Undescribable States of Nature,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(4), pages 1085-1124.
- Anderlini, L. & Felli, L., 1993. "Incomplete Written Contracts: Undescribable States of Nature," Papers 183, Cambridge - Risk, Information & Quantity Signals.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Frech, H E, III & Ginsburg, Paul B, 1975. "Imposed Health Insurance in Monopolistic Markets: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 13(1), pages 55-70, March.
- Vaithianathan, Rhema, 2006. "Health insurance and imperfect competition in the health care market," Journal of Health Economics, Elsevier, vol. 25(6), pages 1193-1202, November.
- Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
- von Ungern-Sternberg, Thomas, 1996. "The limits of competition: Housing insurance in Switzerland," European Economic Review, Elsevier, vol. 40(3-5), pages 1111-1121, April.
- Thomas VON UNGERN-STERNBERG, 1995. "The Limits of Competition : Housing Insurance in Switzerland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9511, Université de Lausanne, Faculté des HEC, DEEP.
- Maskin, Eric, 2002. "On indescribable contingencies and incomplete contracts," European Economic Review, Elsevier, vol. 46(4-5), pages 725-733, May.
- Eric Maskin, 2001. "On Indescribable Contingencies and Incomplete Contracts," Economics Working Papers 0008, Institute for Advanced Study, School of Social Science.
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, "undated". "On Hotelling's "Stability in competition"," CORE Discussion Papers RP 385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Chiu, W. Henry, 1997. "Health insurance and the welfare of health care consumers," Journal of Public Economics, Elsevier, vol. 64(1), pages 125-133, April.
- Feldstein, Martin S, 1970. "The Rising Price of Physicians' Services," The Review of Economics and Statistics, MIT Press, vol. 52(2), pages 121-133, May.
- Amy Finkelstein, 2007. "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 1-37.
- Feldstein, Martin S, 1971. "Hospital Cost Inflation: A Study of Nonprofit Price Dynamics," American Economic Review, American Economic Association, vol. 61(5), pages 853-872, December.
- Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 2000. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 992-1005, October.
- Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 1998. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second Best in Health Care Markets," NBER Working Papers 6865, National Bureau of Economic Research, Inc.
- Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-280, Part I, M.
- Nina Pavcnik, 2000. "Do Pharmaceutical Prices Respond to Insurance?," NBER Working Papers 7865, National Bureau of Economic Research, Inc.
- Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-249, March-May.
- Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
- Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
- Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 541-562.
- Feldman, Roger & Dowd, Bryan, 1991. "A New Estimate of the Welfare Loss of Excess Health Insurance," American Economic Review, American Economic Association, vol. 81(1), pages 297-301, March.
- Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-273, November.
- Berthold U. Wigger & Markus Anlauf, 2007. "Do Consumers Purchase Too Much Health Insurance? The Role of Market Power in Health-Care Markets," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 547-561, June.
- Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 265-279.
- Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:53:y:2009:i:3:p:343-354. 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: (Dana Niculescu)
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.