Competitive insurance markets with unbounded cost

Levy, Yehuda John; Veiga, André

doi:10.1016/j.jet.2021.105198

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2023

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“…See also Levy and Veiga (2022) for a formal treatment of mandated contracts in a one-dimensional (risk) version of the model developed in this paper. They show that equilibrium generically exhibits partial pooling and increases in the minimal allowed coverage have ambiguous effects on welfare.…”

Section: Related Literaturementioning

confidence: 99%

Risk Classification in Insurance Markets with Risk and Preference Heterogeneity

Luz

Gottardi

Moreira³

2023

Review of Economic Studies

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This paper studies a competitive model of insurance markets in which consumers are privately informed about their risk and risk preferences. We provide a characterization of the equilibria, which depend non-trivially on consumers' type distribution, a desirable feature for policy analysis. The use of consumer char-acteristics for risk classification is modeled as the disclosure of a public informative signal. A novel property of signals, monotonicity, is shown to be necessary and sufficient for their release to be welfare improving for almost all consumer types. We also study the effect of changes to the risk distribution in the population as the result of demographic changes or policy interventions. We show that an increase in the risk distribu-tion, according to the monotone likelihood ratio ordering of distribution, leads to lower utility for almost all consumer types. In contrast, the effect is ambiguous when considering the first order stochastic dominance ordering.

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Section: Related Literaturementioning

confidence: 99%