Advantageous Selection in Insurance Markets
Year: 2001
Type: article
Abstract: 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.
Source: The RAND Journal of Economics
DOI: 10.2307/2696408
Authors: David de Meza, David C. Webb
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1976598038