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Search, Moral Hazard, and Price Dispersion

Listed author(s):
  • S. Nuray Akin


    (Department of Economics, University of Miami)

  • Brennan C. Platt


    (Department of Economics, Brigham Young University)

We study the effects of insurance coverage on consumer search behavior and the pricing of services covered by insurance, constructing a general equilibrium model of moral hazard in search with an endogenous price distribution. When an insured event occurs, households request quotes from firms, who offer a homogenous service at various prices. We show that lower coinsurance rates reduce the amount of search by households, allowing firms to increase their prices. Hence, moral hazard in search is far more costly than shown in previous models, which ignored equilibrium firm response to changes in consumer search behavior.

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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0711.

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Length: 20 pages
Date of creation: 27 Nov 2007
Publication status: Forthcoming: Under Review
Handle: RePEc:mia:wpaper:0711
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