Risk aversion influence on insurance market
Human behavior, rational or irrational one, influences one of the most complex markets worldwide: the insurance market. In most situations, insurance markets are not competitive and risk neutral insurers negotiate under asymmetric information with actors who exhibit risk aversion. In this paper we develop a game theory model that analyzes the negotiation of an insurance contract under risk aversion conditions (in static and dynamic approach). Risk aversion influence was introduced in the model by intermediary of a discount factor (the in equivalent to players’ patience) instead of using a utility function. The main conclusion is that the customer prefers to agree on a contract of insurance in the first stage of negotiation than having to wait for another round of negotiations, during which they could register various losses.
|Date of creation:||13 Nov 2011|
|Date of revision:||01 Feb 2012|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- De Meza, D. & Webb, D.C., 2000.
"Advantageous Selection in Insurance Market,"
0007, Exeter University, Department of Economics.
- Inderst, Roman & Wambach, Achim, 1999.
"Competitive Insurance Markets Under Adverse Selection and Capacity Constraints,"
CEPR Discussion Papers
2269, C.E.P.R. Discussion Papers.
- Inderst, Roman & Wambach, Achim, 2001. "Competitive insurance markets under adverse selection and capacity constraints," European Economic Review, Elsevier, vol. 45(10), pages 1981-1992, December.
- Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M.
- Feldstein, Martin & Poterba, James, 1984.
"Unemployment insurance and reservation wages,"
Journal of Public Economics,
Elsevier, vol. 23(1-2), pages 141-167.
- Bertrand Villeneuve, 2003.
"Mandatory Pensions and the Intensity of Adverse Selection in Life Insurance Markets,"
Journal of Risk & Insurance,
The American Risk and Insurance Association, vol. 70(3), pages 527-548.
- Villeneuve, Bertrand, 2003. "Mandatory pensions and the intensity of adverse selection in life insurance markets," Economics Papers from University Paris Dauphine 123456789/5363, Paris Dauphine University.
- Knabe, Andreas, 2009. "Implementing endogenous inside options in Nash wage bargaining models," Mathematical Social Sciences, Elsevier, vol. 57(2), pages 161-176, March.
- Dionne, Georges & Gagne, Robert, 2002.
" Replacement Cost Endorsement and Opportunistic Fraud in Automobile Insurance,"
Journal of Risk and Uncertainty,
Springer, vol. 24(3), pages 213-30, May.
- G. Dionne & R. Gagné, 2000. "Replacement Cost Endorsement and Opportunistic Fraud in Automobile Insurance," THEMA Working Papers 2000-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Dionne, G. & Gagne, R., 2000. "Replacement Cost Endorsement and Opportunitic Fraud in Automobile Insurance," Ecole des Hautes Etudes Commerciales de Montreal- 00-01, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- Laffont, Jean-Jacques & Rochet, Jean-Charles, 1998. "Regulation of a Risk Averse Firm," Games and Economic Behavior, Elsevier, vol. 25(2), pages 149-173, November.
- Finkelstein, Amy & McKnight, Robin, 2008. "What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending," Journal of Public Economics, Elsevier, vol. 92(7), pages 1644-1668, July.
- Picard, Pierre, 2009.
"Costly risk verification without commitment in competitive insurance markets,"
Games and Economic Behavior,
Elsevier, vol. 66(2), pages 893-919, July.
- P. Picard, 2002. "Costly risk verification without commitment in competitive insurance markets," THEMA Working Papers 2002-30, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Riley, John G, 1979. "Noncooperative Equilibrium and Market Signalling," American Economic Review, American Economic Association, vol. 69(2), pages 303-07, May.
- Drew Fudenberg & David K Levine, 2004.
"The Nash Threats Folk Theorem With Communication and Approximate Common Knowledge in Two Player Games,"
Levine's Working Paper Archive
618897000000000030, David K. Levine.
- Fudenberg, Drew & Levine, David K., 2007. "The Nash-threats folk theorem with communication and approximate common knowledge in two player games," Journal of Economic Theory, Elsevier, vol. 132(1), pages 461-473, January.
- Drew Fudenberg & David K. Levine, 2002. "The Nash Threats Folk Theorem With Communication and Approximate Common Knowledge In Two Player Games," Harvard Institute of Economic Research Working Papers 1961, Harvard - Institute of Economic Research.
- Fudenberg, Drew & Levine, David, 2007. "The Nash-Threats Folk Theorem with Communication and Approximate Common Knowledge in Two Player Games," Scholarly Articles 3203772, Harvard University Department of Economics.
- Viaene, Stijn & Veugelers, Reinhilde & Dedene, Guido, 2002. "Insurance bargaining under risk aversion," Economic Modelling, Elsevier, vol. 19(2), pages 245-259, March.
- Ania, Ana B. & Troger, Thomas & Wambach, Achim, 2002. "An evolutionary analysis of insurance markets with adverse selection," Games and Economic Behavior, Elsevier, vol. 40(2), pages 153-184, August.
- Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-11, January.
- Sabourian, Hamid, 2004. "Bargaining and markets: complexity and the competitive outcome," Journal of Economic Theory, Elsevier, vol. 116(2), pages 189-228, June.
- Asheim, G.B. & Nilssen, T., 1994.
"Non-Discriminating Renegotiation in a Competitive Insurance Market,"
25, Laval - Laboratoire Econometrie.
- Asheim, Geir B. & Nilssen, Tore, 1996. "Non-discriminating renegotiation in a competitive insurance market," European Economic Review, Elsevier, vol. 40(9), pages 1717-1736, December.
- Asheim, G.B. & Nilssen, T., 1995. "Non-Discriminating Renogociation in a Competitive Insurance Market," Memorandum 03/1995, Oslo University, Department of Economics.
- Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
- Schlesinger, Harris, 1984. "Two-person insurance negotiation," Insurance: Mathematics and Economics, Elsevier, vol. 3(3), pages 147-149, July.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:37725. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.