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Multidimensional screening in a monopolistic insurance market

Author

Listed:
  • Olivella, Pau

    (Universitat Autonóma de Barcelona)

  • Schroyen, Fred

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

In this paper, we consider a population of ndividuals 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 …nd 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.

Suggested Citation

  • Olivella, Pau & Schroyen, Fred, 2011. "Multidimensional screening in a monopolistic insurance market," Discussion Paper Series in Economics 19/2011, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2011_019
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    Cited by:

    1. Cristian Pardo & Jorge Sabat, 2025. "Equity and efficiency effects of flat premiums," International Journal of Health Economics and Management, Springer, vol. 25(1), pages 27-49, March.
    2. Barigozzi, Francesca & Burani, Nadia, 2016. "Competition and screening with motivated health professionals," Journal of Health Economics, Elsevier, vol. 50(C), pages 358-371.
    3. Rachel J. Huang & Arthur Snow & Larry Y. Tzeng, 2017. "Advantageous Selection in Insurance Markets with Compound Risk," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(2), pages 171-192, September.
    4. Pau Olivella, 2024. "Asymmetric information in health economics: Can contract regulation improve equity and efficiency?," Chapters, in: Daphne R. Raban & Julia WÅ‚odarczyk (ed.), The Elgar Companion to Information Economics, chapter 8, pages 154-169, Edward Elgar Publishing.
    5. Buitrago, Giancarlo & Bardey, David, "undated". "Voluntary Health Plan Subsidies and Public Expenditure," Documentos CEDE Series 212854, Universidad de Los Andes, Economics Department.
    6. Chen, An & Li, Hong & Schultze, Mark, 2022. "Collective longevity swap: A novel longevity risk transfer solution and its economic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 227-249.

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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