Advantageous Selection in Insurance Markets.
This article reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision. Risk-tolerant individuals take few precautions and are disinclined to insure, but they are drawn into a pooling equilibrium by the low premiums created by the presence of safer, more risk-averse types. Taxing insurance drives out the reckless clients, allowing a strict Pareto gain. This result depends on administrative costs in processing claims and issuing policies, as does the novel finding of a pure-strategy, partial-pooling, subgame-perfect Nash equilibrium in the insurance market. Copyright 2001 by the RAND Corporation.
Year of publication: |
2001
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Authors: | de Meza, David ; Webb, David C |
Published in: |
RAND Journal of Economics. - The RAND Corporation, ISSN 0741-6261. - Vol. 32.2001, 2, p. 249-62
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Publisher: |
The RAND Corporation |
Saved in:
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