Efficient risk-sharing under adverse selection and subjective risk perception
The present paper thoroughly explores second-best efficient allocations in an adverse selection insurance economy. We start from a natural extension of the classical model, assumer less than perfect risk perceptions. We propose first and second welfare theorems, by means of which we describe efficiency-enhancing policies. Notions of weak and strong adverse selection are promising for interpreting real world insurance arrangements.
|Date of creation:||2002|
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