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Multidimensional screening in a monopolistic insurance market

  • OLIVELLA, Pau

    ()

    (Departament d’Economia i d’Historia Economica and CODE, Universitat Autonoma de Barcelona, Spain)

  • SCHROYEN, Fred

    ()

    (Department of Economics, NHH Norwegian School of Economics, Bergen and HEB)

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011056.

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Date of creation: 07 Dec 2011
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Handle: RePEc:cor:louvco:2011056
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