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Equilibrium in insurance markets with adverse selection when insurers pay policy dividends

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  • Pierre Picard

    (X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract

We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection and an arbitrary number of risk types, when insurance contracts include policy dividend rules. The Miyazaki-WilsonSpence state-contingent allocation is an equilibrium allocation, and it is the only one when out-of-equilibrium beliefs satisfy a robustness criterion. It is shown that stock insurers and mutuals may coexist, with stock insurers o⁄ering insurance coverage at actuarial price and mutuals cross-subsidizing risks.

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  • Pierre Picard, 2016. "Equilibrium in insurance markets with adverse selection when insurers pay policy dividends," Working Papers hal-01206073, HAL.
    • Handle: RePEc:hal:wpaper:hal-01206073
    Note: View the original document on HAL open archive server: https://polytechnique.hal.science/hal-01206073v2
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    References listed on IDEAS

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    Cited by:

    1. Wanda Mimra & Achim Wambach, 2019. "Contract withdrawals and equilibrium in competitive markets with adverse selection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 875-907, June.
    2. Dionne, Georges & Fombaron, Nathalie & Mimra, Wanda, 2023. "Adverse selection in insurance," Working Papers 23-5, HEC Montreal, Canada Research Chair in Risk Management.
    3. Gemmo, Irina & Kubitza, Christian & Rothschild, Casey, 2020. "Constrained efficient equilibria in selection markets with continuous types," Journal of Public Economics, Elsevier, vol. 190(C).
    4. Gemmo, Irina & Kubitza, Christian & Rothschild, Casey G., 2018. "The existence of the Miyazaki-Wilson-Spence equilibrium with continuous type distributions," ICIR Working Paper Series 32/18, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    5. Dosis, Anastasios, 2022. "Price caps and efficiency in markets with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 99(C).

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    Keywords

    Participating Contract; Policy Dividend; Insurance; Adverse Selection; Mutual;
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