Download or read book Equilibrium in a Competitive Insurance Market Under Adverse Selection with Endogenous Information written by Joseph E. Stiglitz and published by . This book was released on 2017 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the existence and nature of equilibrium in a competitive insurance market under adverse selection with endogenously determined information structures. Rothschild-Stiglitz (RS) characterized the self-selection equilibrium under the assumption of exclusivity, enforcement of which required full information about contracts purchased. By contrast, the Akerlof price equilibrium described a situation where the insurance firm has no information about sales to a particular individual. We show that with more plausible information assumptions -- no insurance firm has full information but at least knows how much he has sold to any particular individual -- neither the RS quantity constrained equilibrium nor the Akerlof price equilibrium are sustainable. But when the information structure itself is endogenous -- firms and consumers decide what information about insurance purchases to reveal to whom -- there always exists a Nash equilibrium. Strategies for firms consist of insurance contracts to offer and information-revelation strategies; for customers -- buying as well as information revelation strategies. The equilibrium set of insurance contracts is unique: the low risk individual obtains insurance corresponding to the pooling contract most preferred by him; the high risk individual, that plus (undisclosed) supplemental insurance at his own actuarial odds resulting in his being fully insured. Equilibrium information revelation strategies of firms entail some but not complete information sharing. However, in equilibrium all individuals are induced to tell the truth. The paper shows how the analysis extends to cases where there are more than two groups of individuals and where firms can offer multiple insurance contracts.

Download or read book Optimality and Equilibrium In a Competitive Insurance Market Under Adverse Selection and Moral Hazard written by Joseph E. Stiglitz and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes optimal and equilibrium insurance contracts under adverse selection and moral hazard, comparing them with those under a single informational asymmetry. The complex interactions of self-selection and moral hazard constraints have important consequences. We develop an analytic approach that allows a characterization of equilibrium and optimal (Pareto Optimal (PO), and Utilitarian optimal (UO)) allocations. Among the results : (i) a PO allocation may involve "shirking" (not only less care in accident avoidance than is possible, but less care compared to the case of pure moral hazard) either by high risk individuals in the case of single-crossing preference or by one or both types in the case of multi-crossing preference (as may naturally be the case under the double informational asymmetry); and (ii) while an equilibrium, which is unique (even under multi-crossing preferences) if it exists, is more likely to exist as the non-shirking constraint for low-risk type gets more stringent (i.e. when low risk individuals shirk with lower levels of insurance). We also show that a pooling equilibrium, which is not feasible under pure adverse selection, may exist when individuals differ in risk aversion (as well as in accident probability) or when the provision of insurance is non-exclusive (i.e. individuals can purchase insurance from more than one firm). Furthermore, while with pure adverse selection, UO always entails pooling with complete insurance (in the standard model), with adverse selection and moral hazard, all PO allocations may entail separation and the UO may entail incomplete insurance. We show further that, in general, any PO allocation can be implemented by a basic pooling insurance provided by the government and a supplemental separating contracts that can be offered by the market, although, in the presence of moral hazard, a tax needs to be imposed upon the market provision. The analysis suggests that two commonly obser.

Download or read book Equilibrium in Competitive Insurance Markets with Ex Ante Adverse Selection and Ex Post Moral Hazard written by William Jack and published by . This book was released on 1998 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Equilibrium in Insurance Markets with Asymmetric Information and Adverse Selection written by Jonathan A. K. Cave and published by Rand Corporation. This book was released on 1984 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report examines possible outcomes of greater competition in insurance markets. The report describes the nature of insurance offerings in equilibrium if firms offer multiple policies; but it replaces the conventional assumption that each policy must earn nonnegative profits with the more realistic requirement that the portfolio of policies offered by the firm earn nonnegative profits in the aggregate. Theorems regarding the existence, optimality, and uniqueness of the subsidy equilibrium are presented, together with a simple characterization of the subsidy equilibrium and a comparison with existing equilibrium notions. Because the subsidy patterns, from low to high, that emerge under this formulation appear to characterize multiple-option insurance plans such as the Federal Employees Health Benefits Plan, this model may be more useful than conventional methods in the analysis of such plans.

Download or read book Existence of Equilibria in Competitive Insurance Markets written by Peter S. Faynzilberg and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the conditions conjectured by Rothschild and Stiglitz (1976)as leading to market failure, we demonstrate the existence of a uniqueequilibrium in a risk-sharing economy with adverse selection. This equilibrium may be separating or partially pooling: in an economy withthree types, for instance, the low- and the medium-risk buyer segmentsmay be offered the same insurance policy.In equilibrium, buyers' indirect utility decreases with their propensityfor accident. When low-risk buyers are prevalent, sellers subsidizetheir operations across segments: they derive a positive profit in thelow-risk segment and incur a loss of equal magnitude in the rest ofthe economy. This leaves high-risk buyers better off than under thefirst-best policy they purchase when sellers are perfectly informed.In contrast to the putative equilibrium of the Rothschild-Stiglitzmodel, the second-best equilibrium depends on the structure of thebuyer population and converges to the first-best of the correspondinghomogeneous population as low- risk buyers become increasingly prevalentin the economy.

Download or read book Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition written by Joseph E. Stiglitz and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study insurance markets with nonexclusive contracts, introducing bilateral endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under remarkably mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome consists of a pooling contract which maximizes the well-being of the low risk type (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk type to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Consumer disclosure and asymmetric equilibrium information flows are critical in supporting the equilibrium.

Download or read book A Game theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection written by Wanda Mimra and published by . This book was released on 2011 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Consumer Risk Perceptions and Information in Insurance Markets with Adverse Selection written by James A. Ligon and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Standard models of adverse selection in insurance markets assume policyholders know their loss distributions. This study examines the nature of equilibrium and the equilibrium value of information in competitive insurance markets where consumers lack complete information regarding their loss probabilities. We show that additional private information is privately and socially valuable. When the equilibrium policies separate types, policyholders can deduce the underlying probabilities from the contracts, so it is information on risk type, rather than loss probability per se, that is valuable. We show that the equilibrium is quot;as ifquot; policyholders were endowed with complete knowledge if, and only if, information is noiseless and costless. If information is noisy, the equilibrium depends on policyholders' prior beliefs and the amount of noise in the information they acquire.

Download or read book Time Risk Precommitment and Adverse Selection in Competitive Insurance Markets written by Mark V. Pauly and published by . This book was released on 2003 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: This informal paper explores models of competitve insurance market equilibrium when individuals of initially similar apparent risk experience divergence in risk levels over time. The information structrue is modeled in three alternative ways: all insurers and insureds know risk at any point in time, current insurer and insured know risk, and only the individual knows risk. Insurers always know the average risk. It is shown that some models lead to "backloading" of premiums in which initial period expected expense, and that other models lead to "frontloading" of premiums and policy provisions of "guaranteed renewability." Finally, it is shown that guaranteed renewability greatly reduces the possibility of adverse selection.

Download or read book Adverse Selection in Insurance Contracting written by Georges Dionne and published by . This book was released on 2012 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Insurance Under Adverse Selection and Ambiguity Aversion written by Kostas Koufopoulos and published by . This book was released on 2019 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider a model of competitive insurance markets under asymmetric information with ambiguity-averse agents who maximize their maxmin expected utility. The interaction between asymmetric information and ambiguity aversion gives rise to some interesting results. First, for some parameter values, there exists a unique pooling equilibrium where both types of insurees buy full insurance. Second, in separating equilibria where the low risks are underinsured their equilibrium contract involves more coverage than under standard expected utility. Due to the endogeneity of commitment to the contracts offered by insurers, our model has always an equilibrium which is unique and interim incentive efficient (second-best).

Download or read book Nash Equilibrium in Competitive Insurance written by Anastasios Dosis and published by . This book was released on 2017 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: I formalise a rather stylised insurance market with adverse selection as a standard duopoly. I formally specify demand functions and profits and I prove that a Nash equilibrium in pure strategies exists if and only if the well-known Rothschild-Stiglitz allocation is efficient.

Download or read book Adverse Selection in Competitive Search Equilibrium written by Veronica Guerrieri and published by . This book was released on 2009 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extend the concept of competitive search equilibrium to environments with private information, and in particular adverse selection. Principals (e.g. employers or agents who want to buy assets) post contracts, which we model as revelation mechanisms. Agents (e.g. workers, or asset holders) have private information about the potential gains from trade. Agents observe the posted contracts and decide where to apply, trading off the contracts' terms of trade against the probability of matching, which depends in general on the principals' capacity constraints and market search frictions. We characterize equilibrium as the solution to a constrained optimization problem, and prove that principals offer separating contracts to attract different types of agents. We then present a series of applications, including models of signaling, insurance, and lemons. These illustrate the usefulness and generality of the approach, and serve to contrast our findings with standard results in both the contract and search literatures.

Download or read book Characterization Existence and Pareto Optimality in Insurance Markets with Asymmetric Information with Endogenous and Asymmetric Disclosures written by Joseph E. Stiglitz and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the Rothschild-Stiglitz model of competitive insurance markets with endogenous information disclosure by both firms and consumers. We show that an equilibrium always exists, (even without the single crossing property), and characterize the unique equilibrium allocation. With two types of consumers the outcome is particularly simple, consisting of a pooling allocation which maximizes the well-being of the low risk individual (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk individual to full insurance (at his own odds). We show that this outcome is extremely robust and Pareto efficient.

Download or read book Foundations of Insurance Economics written by Georges Dionne and published by Springer Science & Business Media. This book was released on 1992 with total page 748 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it was not possible to provide comprehensive coverage of insurance economics in this book, these readings provide an essential foundation to those who desire to conduct research and teach in the field. In particular, we hope that this compilation and our introduction will be useful to graduate students and to researchers in economics, finance, and insurance. Our criteria for selecting articles included significance, representativeness, pedagogical value, and our desire to include theoretical and empirical work. While the focus of the applied papers is on property-liability insurance, they illustrate issues, concepts, and methods that are applicable in many areas of insurance. The S. S. Huebner Foundation for Insurance Education at the University of Pennsylvania's Wharton School made this book possible by financing publication costs. We are grateful for this assistance and to J. David Cummins, Executive Director of the Foundation, for his efforts and helpful advice on the contents. We also wish to thank all of the authors and editors who provided permission to reprint articles and our respective institutions for technical and financial support.

Download or read book Asymmetric Information and the Market Structure of the Banking Industry written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.

Download or read book Selected Works of Joseph E Stiglitz written by Joseph E. Stiglitz and published by Oxford University Press. This book was released on 2009 with total page 767 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first in a series of six volumes containing a selection of Joseph Stiglitz's most important and widely cited work, this volume includes a number of seminal papers on the economics of information. The volume contains substantial additional original commentary by Joseph Stiglitz on his work and the field more generally.