IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Multidimensional screening in a monopolistic insurance market

Listed author(s):
  • 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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://uclouvain.be/cps/ucl/doc/core/documents/coredp2011_56web.pdf
Download Restriction: no

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

as
in new window

Length:
Date of creation: 07 Dec 2011
Handle: RePEc:cor:louvco:2011056
Contact details of provider: Postal:
Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)

Phone: 32(10)474321
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
  2. Bruno Jullien & Bernard Salanié & François Salanié, 2007. "Screening risk-averse agents under moral hazard: single-crossing and the CARA case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 151-169, January.
  3. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
  4. Keith J. Crocker & Arthur Snow, 2011. "Multidimensional Screening in Insurance Markets with Adverse Selection," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 287-307, June.
  5. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
  6. repec:dau:papers:123456789/5370 is not listed on IDEAS
  7. Smart, Michael, 2000. "Competitive Insurance Markets with Two Unobservables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 153-169, February.
  8. repec:adr:anecst:y:2003:i:69:p:06 is not listed on IDEAS
  9. Pau Olivella & Marcos Vera-Hernández, 2006. "Testing for Asymmetric Information in Private Health Insurance," Working Papers 246, Barcelona Graduate School of Economics.
  10. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
  11. Eckel, Catherine C. & Grossman, Philip J., 2008. "Men, Women and Risk Aversion: Experimental Evidence," Handbook of Experimental Economics Results, Elsevier.
  12. David M. Cutler & Amy Finkelstein & Kathleen McGarry, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," American Economic Review, American Economic Association, vol. 98(2), pages 157-162, May.
  13. Bruno Jullien & Bernard Salanié & François Salanié, 2000. "Screening Risk-Averse Agents Under Moral Hazard," Working Papers 2000-41, Center for Research in Economics and Statistics.
  14. Kimball, Miles S & Sahm, Claudia R & Shapiro, Matthew D, 2008. "Imputing Risk Tolerance From Survey Responses," Journal of the American Statistical Association, American Statistical Association, vol. 103(483), pages 1028-1038.
  15. Philippe Donder & Jean Hindriks, 2009. "Adverse selection, moral hazard and propitious selection," Journal of Risk and Uncertainty, Springer, vol. 38(1), pages 73-86, February.
  16. Armstrong, Mark, 1999. "Optimal Regulation with Unknown Demand and Cost Functions," Journal of Economic Theory, Elsevier, vol. 84(2), pages 196-215, February.
  17. Bertrand Villeneuve, 2000. "The Consequences for a Monopolistic Insurance Firm of Evaluating Risk Better than Customers: The Adverse Selection Hypothesis Reversed," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 25(1), pages 65-79, June.
  18. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  19. Pierre Picard, 2012. "Economic Analysis of Insurance Fraud," Working Papers hal-00725561, HAL.
  20. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
  21. Bertrand Villeneuve, 2003. "Concurrence et antisélection multidimensionnelle en assurance," Annals of Economics and Statistics, GENES, issue 69, pages 119-142.
  22. Leemore Dafny & Mark Duggan & Subramaniam Ramanarayanan, 2012. "Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry," American Economic Review, American Economic Association, vol. 102(2), pages 1161-1185, April.
  23. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-344, April.
  24. Leemore S. Dafny, 2010. "Are Health Insurance Markets Competitive?," American Economic Review, American Economic Association, vol. 100(4), pages 1399-1431, September.
  25. Landsberger, Michael & Meilijson, Isaac, 1996. "Extraction of Surplus under Adverse Selection: The Case of Insurance Markets," Journal of Economic Theory, Elsevier, vol. 69(1), pages 234-239, April.
  26. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
  27. Michael Hoy, 1982. "Categorizing Risks in the Insurance Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 321-336.
  28. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  29. De Donder, Philippe & Hindriks, Jean, 2007. "Equilibrium social insurance with policy-motivated parties," European Journal of Political Economy, Elsevier, vol. 23(3), pages 624-640, September.
  30. Dana Jr. James D., 1993. "The Organization and Scope of Agents: Regulating Multiproduct Industries," Journal of Economic Theory, Elsevier, vol. 59(2), pages 288-310, April.
  31. Hajime Miyazaki, 1977. "The Rat Race and Internal Labor Markets," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 394-418, Autumn.
  32. Nick Netzer & Florian Scheuer, 2010. "Competitive screening in insurance markets with endogenous wealth heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(2), pages 187-211, August.
  33. Laurie J. Bates & James I. Hilliard & Rexford E. Santerre, 2012. "Do Health Insurers Possess Market Power?," Southern Economic Journal, Southern Economic Association, vol. 78(4), pages 1289-1304, April.
  34. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
  35. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc.
  36. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
  37. Pau Olivella & Marcos Vera‐Hernández, 2013. "Testing for Asymmetric Information in Private Health Insurance-super-," Economic Journal, Royal Economic Society, vol. 123(567), pages 96-130, March.
  38. repec:adr:anecst:y:2003:i:69 is not listed on IDEAS
  39. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2011056. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.