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Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition

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  • Joseph E. Stiglitz
  • Jungyoll Yun
  • Andrew Kosenko

Abstract

We study insurance markets with nonexclusive contracts, introducing bilateral endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under remarkably mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome consists of a pooling contract which maximizes the well-being of the low risk type (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk type to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Consumer disclosure and asymmetric equilibrium information flows are critical in supporting the equilibrium.

Suggested Citation

  • Joseph E. Stiglitz & Jungyoll Yun & Andrew Kosenko, 2020. "Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition," NBER Working Papers 27041, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27041
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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