Multiple Contracting in Insurance Markets

Attar, Andrea, Mariotti, Thomas and Salanié, François (2014) Multiple Contracting in Insurance Markets. TSE Working Paper, n. 14-532, Toulouse

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Official URL: http://tse-fr.eu/pub/28620

Abstract

We study insurance markets in which privately informed consumers can purchase coverage from several insurers. Under adverse selection, multiple contracting severely restricts feasible trades. Indeed, only one budget-balanced allocation is implementable by an entry-proof tariff, and each layer of coverage must be fairly priced given the consumer types who purchase it. This allocation is the unique equilibrium outcome of a game in which cross-subsidies between contracts are prohibited. Equilibrium contracts exhibit quantity discounts and negative correlation between risk and coverage. Public intervention should target insurers’ strategic behavior, while consumers can be left free to choose their preferred amount of coverage.

Item Type: Monograph (Working Paper)
Language: English
Date: 7 October 2014
Place of Publication: Toulouse
Uncontrolled Keywords: Insurance Markets, Multiple Contracting, Adverse Selection
JEL codes: D43 - Oligopoly and Other Forms of Market Imperfection
D82 - Asymmetric and Private Information
D86 - Economics of Contract - Theory
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 16 Mar 2015 14:51
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28620
URI: http://publications.ut-capitole.fr/id/eprint/16609

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