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Multidimensional Screening in a Monopolistic Insurance Market

Author

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  • Pau Olivella

    (Departament d’Economia i d’Història Econòmica, Universitat Autònoma de Barcelona, Edifici B, Bellaterra E-08193, Spain; and Barcelona GSE.)

  • Fred Schroyen

    (Department of Economics, NHH Norwegian School of Economics, Helleveien 30, Bergen N-5045, Norway.)

Abstract

We consider a population of individuals who differ in two dimensions, their risk type (expected loss) and their risk aversion, and solve for the profit-maximising menu of contracts that a monopolistic insurer puts out on the market. Our findings are threefold. First, it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, because women tend to be more risk averse than men (in that the risk aversion distribution for women first-order stochastically dominates that for men), gender discrimination may lead to a Pareto improvement.

Suggested Citation

  • Pau Olivella & Fred Schroyen, 2014. "Multidimensional Screening in a Monopolistic Insurance Market," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(1), pages 90-130, March.
    • Handle: RePEc:pal:genrir:v:39:y:2014:i:1:p:90-130
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    3. Buitrago, Giancarlo & Bardey, David, 2015. "Voluntary Health Plan Subsidies and Public Expenditure," Documentos CEDE Series 212854, Universidad de Los Andes, Economics Department.
    4. Chen, An & Li, Hong & Schultze, Mark, 2022. "Collective longevity swap: A novel longevity risk transfer solution and its economic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 227-249.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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