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Insurance monopoly and renegotiation (*)

Listed author(s):
  • Geir B. Asheim

    (Department of Economics, University of Oslo, N-0317 Oslo, NORWAY)

  • Tore Nilssen

    (Department of Economics, University of Oslo, N-0317 Oslo, NORWAY)

The mechanism design problem of a monopoly insurer - faced with privately informed insurees - is considered. It is assumed that the insurer cannot commit not to renegotiate (by using the information that customer separa-tion reveals) before contracts are put into force. A solution is offered by modeling renegotiation-proofness in a framework inspired by Greenberg's theory of social situations. Maximizing profit within the set of renegotiation-proof outcomes always leads to a semi-separating outcome (i.e. neither full pooling nor full separation can occur) and may leave all low-risks as well as some of the high-risks self-insured.

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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 9 (1997)
Issue (Month): 2 ()
Pages: 341-354

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Handle: RePEc:spr:joecth:v:9:y:1997:i:2:p:341-354
Note: Received: March 1, 1994; revised version September 16, 1995
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