through deductibles or selling at-fault insurance can partially internalize this externality and thereby improve individual … potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing … in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage …

potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing … in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage … through deductibles can partially internalize this externality and thereby improve individual and social welfare …

The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled … corresponding to effort incentives induced by insurance buyers’ net trades. When there are many agents to share the insurance buyer …’s risk, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers …