IDEAS home Printed from https://ideas.repec.org/a/pal/genrir/v25y2000i2p141-157.html
   My bibliography  Save this article

Equilibrium in Competitive Insurance Markets Under Adverse Selection and Yaari's Dual Theory of Risk

Author

Listed:
  • Virginia R. Young

    (School of Business, University of Wisconsin-Madison, Madison, Wisconsin 53706, USA, e-mail: vyoung@bus.wisc.edu)

  • Mark J. Browne

    (School of Business, University of Wisconsin-Madison, Madison, Wisconsin 53706, USA)

Abstract

Under Yaari's dual theory of risk, we determine the equilibrium separating contracts for high and low risks in a competitive insurance market, in which risks are defined only by their expected losses, that is, a high risk is a risk that has a greater expected loss than a low risk. Also, we determine the pooling equilibrium contract when insurers are assumed non-myopic. Expected utility theory generally predicts that optimal insurance indemnity payments are nonlinear functions of the underlying loss due to the nonlinearity of agents' utility functions. Under Yaari's dual theory, we show that under mild technical conditions the indemnity payment is a piecewise linear function of the loss, a common property of insurance coverages. The Geneva Papers on Risk and Insurance Theory (2000) 25, 141–157. doi:10.1023/A:1008762312418

Suggested Citation

  • Virginia R. Young & Mark J. Browne, 2000. "Equilibrium in Competitive Insurance Markets Under Adverse Selection and Yaari's Dual Theory of Risk," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 25(2), pages 141-157, December.
    • Handle: RePEc:pal:genrir:v:25:y:2000:i:2:p:141-157
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/grir/journal/v25/n2/pdf/grir2000127a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: http://www.palgrave-journals.com/grir/journal/v25/n2/full/grir2000127a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Promislow, S. David & Young, Virginia R., 2002. "Measurement of relative inequity and Yaari's dual theory of risk," Insurance: Mathematics and Economics, Elsevier, vol. 30(1), pages 95-109, February.
    2. Cheung, Ka Chun & Phillip Yam, Sheung Chi & Yuen, Fei Lung & Zhang, Yiying, 2020. "Concave distortion risk minimizing reinsurance design under adverse selection," Insurance: Mathematics and Economics, Elsevier, vol. 91(C), pages 155-165.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:genrir:v:25:y:2000:i:2:p:141-157. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.