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Equilibrium in competitive insurance markets with ex ante adverse selection and ex post moral hazard


  • Jack, William


Existence of pure strategy equilibria is studied in insurance markets that exhibit both ex ante adverse selection of the Rothschild-Stiglitz-Wilson type, and ex post hidden information moral hazard. It is found that ex post moral hazard has two offsetting effects on the existence of equilibrium, and that in general it is difficult to say whether an equilibrium is more or less likely to exist.
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Suggested Citation

  • Jack, William, 2002. "Equilibrium in competitive insurance markets with ex ante adverse selection and ex post moral hazard," Journal of Public Economics, Elsevier, vol. 84(2), pages 251-278, May.
  • Handle: RePEc:eee:pubeco:v:84:y:2002:i:2:p:251-278

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    References listed on IDEAS

    1. Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
    2. 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.
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    5. David M. Cutler & Richard J. Zeckhauser, 1998. "Adverse Selection in Health Insurance," NBER Chapters,in: Frontiers in Health Policy Research, Volume 1, pages 1-32 National Bureau of Economic Research, Inc.
    6. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    7. 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.
    8. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 383-413.
    9. Jack, William & Sheiner, Louise, 1997. "Welfare-Improving Health Expenditure Subsidies," American Economic Review, American Economic Association, vol. 87(1), pages 206-221, March.
    10. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, vol. 24(2), pages 629-675, June.
    11. 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.
    12. Feldstein, Martin & Friedman, Bernard, 1977. "Tax subsidies, the rational demand for insurance and the health care crisis," Journal of Public Economics, Elsevier, vol. 7(2), pages 155-178, April.
    13. Chernew, Michael E. & Frick, Kevin D., 1999. "The impact of managed care on the existence of equilibrium in health insurance markets," Journal of Health Economics, Elsevier, vol. 18(5), pages 571-590, October.
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    Cited by:

    1. Wang, Hong & Zhang, Licheng & Yip, Winnie & Hsiao, William, 2006. "Adverse selection in a voluntary Rural Mutual Health Care health insurance scheme in China," Social Science & Medicine, Elsevier, vol. 63(5), pages 1236-1245, September.
    2. Richard Dusansky & Çağatay Koç, 2010. "Implications of the Interaction Between Insurance Choice and Medical Care Demand," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 129-144.
    3. Richard Dusansky & Çağatay Koç, 2016. "Individual Welfare When Consumers Can Shop For Health Insurance," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1283-1290, April.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I1 - Health, Education, and Welfare - - Health


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