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Time Deductibles as Screening Devices: Competitive Markets

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  • Spreeuw, Jaap
  • Karlsson, Martin

Abstract

Seminal papers on asymmetric information in competitive insurance markets, analyzing the monetary deductible as a screening device, show that any existing equilibrium is of a separating type. High risks buy complete insurance, whereas low risks buy partial insurance—and this result holds for the Nash behavior as well as for the Wilson foresight. In this article, we analyze the strength of screening based on limitations to the period of coverage of the contract. We show that in this case (1) the Nash equilibrium may entail low risks not purchasing any insurance at all, and (2) under the Wilson foresight, a pooling equilibrium may exist.
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Suggested Citation

  • Spreeuw, Jaap & Karlsson, Martin, 2009. "Time Deductibles as Screening Devices: Competitive Markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 34403, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:34403
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/34403/
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    Cited by:

    1. Ma, Ben-jiang & Qiu, Chun-guang & Bi, Wen-jie, 2015. "An insurance contract with a low compensation period under adverse selection," Information Economics and Policy, Elsevier, vol. 31(C), pages 67-74.
    2. Ben‐jiang Ma & Jing‐yu Ye & Geng Liu & Yuan‐ji Huang, 2020. "Adverse selection, limited compensation, and the design of environmental liability insurance contract in the case of enterprise bankruptcy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1327-1337, October.
    3. Ben‐jiang Ma & Jing‐yu Ye & Yuan‐ji Huang & Muhammad Farhan Bashir, 2020. "Research of two‐period insurance contract model with a low compensation period under adverse selection," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 293-307, April.

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