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Linear Prices Equilibria and Nonexclusive Insurance Market

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  • Frédéric Loss
  • Gwenaël Piaser

Abstract

We consider a competitive insurance market in which agents can privately enter into multicontractual insurance relationships and undertake hidden actions. We study the existence of linear equilibria when insurance companies do not have any restriction on their pricing rules. We provide conditions under which a linear equilibrium exists. We show that two different types of linear equilibria could exist: A first one in which insurance companies make zero expected profits, and a second one in which they make strictly positive expected profits. We also analyze the welfare properties of the linear equilibria. We show that they are not always second best Pareto optimal.
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Suggested Citation

  • Frédéric Loss & Gwenaël Piaser, 2014. "Linear Prices Equilibria and Nonexclusive Insurance Market," Working Papers 2014-42, Department of Research, Ipag Business School.
  • Handle: RePEc:ipg:wpaper:2014-42
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    References listed on IDEAS

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    1. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
    2. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-1372, September.
    3. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
    4. Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
    5. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn.
    6. Laurence Ales, 2009. "Adverse Selection and Non-exclusive Contracts," 2009 Meeting Papers 854, Society for Economic Dynamics.
    7. Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
    8. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 383-413.
    9. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
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    Cited by:

    1. Giuseppe Bertola & Winfried Koeniger, 2015. "Hidden insurance in a moral-hazard economy," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 777-790, October.

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