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Learning And Evidence In Insurance Markets

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  • Kym Pram

Abstract

I analyze a model of monopoly insurance contracting where the consumer has access to endogenous, costly evidence of his risk type. I characterize when the consumer is worse off if the insurer is allowed to condition contracts on evidence and when the ability to contract on evidence leads to a Pareto improvement. I compare the results to an analogous setting with perfect competition: Under perfect competition, when evidence acquisition costs are low, the ability to contract on evidence is always Pareto improving. For intermediate costs, I uncover a new source of unraveling.

Suggested Citation

  • Kym Pram, 2023. "Learning And Evidence In Insurance Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1685-1714, November.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:4:p:1685-1714
    DOI: 10.1111/iere.12646
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    References listed on IDEAS

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    Cited by:

    1. Sebastian Schweighofer-Kodritsch & Roland Strausz, 2023. "Principled Mechanism Design with Evidence," Berlin School of Economics Discussion Papers 0030, Berlin School of Economics.

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