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Multidimensional Screening in a Monopolistic Insurance Market

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  • Pau Olivella
  • Fred Schroyen

Abstract

In this paper, we consider a population of individuals who differ in two dimensions: their risk type (expected loss) and their risk aversion. We solve for the profit maximizing menu of contracts that a monopolistic insurer puts out on the market. First, we find that 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, we show that when the average man and woman differ only in risk aversion, gender discrimination may lead to a Pareto improvement.

Suggested Citation

  • Pau Olivella & Fred Schroyen, 2012. "Multidimensional Screening in a Monopolistic Insurance Market," Working Papers 619, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:619
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    References listed on IDEAS

    as
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    Cited by:

    1. Barigozzi, Francesca & Burani, Nadia, 2016. "Competition and screening with motivated health professionals," Journal of Health Economics, Elsevier, vol. 50(C), pages 358-371.
    2. Buitrago, Giancarlo & Bardey, David, 2015. "Voluntary Health Plan Subsidies and Public Expenditure," Documentos CEDE Series 212854, Universidad de Los Andes, Economics Department.

    More about this item

    Keywords

    insurance markets; Asymmetric Information; Screening; gender discrimination; positive correlation test;

    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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