Competitive Screening in Insurance Markets with Endogenous Labor
We examine equilibria in the sense of Rothschild and Stiglitz (1976) in competitive insurance markets when individuals take unobservable labor supply decisions. Precautionary labor motives introduce countervailing incentives in the insurance market, and imperfect type separation can occur in the standard case in which individuals differ only in risk. We then extend the model to allow for both unobservable risks and labor productivities. Under these circumstances, both imperfect risk separation and genuine pooling of different risk-productivity types can arise. We show that such equilibria, with endogenous income heterogeneity, generally differ from those under exogenous income heterogeneity analyzed by Smart (2000) and Wambach (2000). We provide necessary and sufficient equilibrium existence conditions.
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- Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
- Netzer, Nick & Scheuer, Florian, 2007.
"Taxation, insurance, and precautionary labor,"
Journal of Public Economics,
Elsevier, vol. 91(7-8), pages 1519-1531, August.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
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