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 Equilibrium in Competitive Insurance Markets the Welfare Economics of Moral Hazard II Existence and Nature of Equilibrium written by Arnott, Richard J and published by Kingston, Ont. : Institute for Economic Research, Queen's University. This book was released on 1982 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Competitive Insurance Markets Ii written by Peter S. Faynzilberg and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the conditions conjectured by Rothschild and Stiglitz (1976) as leading to extreme market failure, we show the existence of a unique incentive-efficient equilibrium. In terms of its sensitivity to the structure of the buyer population, this equilibrium may be flexible or rigid. Closed-form illustrations of equilibria and the solution methodology, which is based on the characterization of Nash equilibrium in terms of selective efficiency (Faynzilberg, 2003), are also provided.

Download or read book Equilibrium in Competitive Insurance Markets with Moral Hazard written by Richard Arnott and published by . This book was released on 1991 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the existence and nature of competitive equilibrium with moral hazard. The more insurance an individual has, the less care will he take. Consequently, insurance firms attempt to restrict their clients' aggregate insurance purchases. If individuals' aggregate insurance purchases are observable, each firm will ration the amount of insurance its clients can purchase and insist that they purchase no insurance from other firms. This paper focuses on the alternative situation where firms cannot observe their clients' aggregate insurance purchases. We show that firms will still attempt to restrict their clients' aggregate purchases, but now they must do so indirectly. One possibility is that all firms sell only policies with a sufficiently large amount of coverage that individuals choose to purchase insurance from only one firm. Another possibility is that each firm offers a latent policy in addition to its regular policy. Latent policies are not purchased in equilibrium, but serve to restrict entry. If an entering firm offers a supplementary policy, an individual will purchase not only this policy plus his previous policy but also the latent policy. The latent policy is designed so that the individual reduces effort by enough to render any entering policy unprofitable.

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 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 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 Price Equilibrium Efficiency and Decentralizability in Insurance Markets written by Richard Arnott and published by . This book was released on 1991 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate the descriptive and normative properties of competitive equilibrium with moral hazard when firms offer "price contracts" which allow clients to purchase as much insurance as they wish at the quoted prices. We show that a price equilibrium always exists and is one of three types: i) zero profit price equilibrium - zero profit, zero effort, full insurance ii) positive profit price equilibrium - positive profit, positive effort, partial insurance iii) zero insurance price equilibrium - zero insurance, zero profit, positive effort. We also demonstrate circumstances under which the linear taxation of price insurance allows decentralization of the social optimum (conditional on the unobservability of effort), and when it, does not, whether it is at least utility-improving

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 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 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 Equilibrium in competitive insurance markets with moral hazard written by Richard Arnott and published by . This book was released on 1991 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Competitive Insurance Markets Under Adverse Selection and Capacity Constraints written by Roman Inderst and published by . This book was released on 1999 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Efficient Competitive Equilibria with Adverse Selection written by Alberto Bisin and published by . This book was released on 2012 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do Walrasian markets function orderly in the presence of adverse selection? In particular, is their outcome efficient? This paper addresses these questions in the context of a Rothschild and Stiglitz insurance economy. We identify an externality associated with the presence of adverse selection as a special form of consumption externality. Consequently, we show that while competitive equilibria always exist, they are not typically incentive efficient. However, as markets for pollution rights can internalize environmental externalities, markets for consumption rights can be designed so as to internalize the consumption externality due to adverse selection. With such markets competitive equilibria exist and are always incentive efficient. Moreover, any incentive efficient allocation can be decentralized as a competitive equilibrium.

Download or read book Ambiguity Aversion in Competitive Insurance Markets with Asymmetric Information written by Richard Peter and published by . This book was released on 2019 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the effect of ambiguous loss probabilities on competitive insurance markets with asymmetric information. We characterize equilibria under actuarially fair pricing with preferences that are second-order ambiguity averse (have smooth indifference curves). We also show existence of uniqueness of the second-best contracts and provide a characterization. Non-increasing absolute ambiguity aversion is sufficient for adverse selection in the smooth model. We then determine the effect of ambiguity on equilibrium under ambiguity aversion. There is a coverage effect because ambiguity relaxes the self-selection constraint and raises the available coverage for the low risks, and an ambiguity effect because ambiguity makes ambiguity averse agents worse off. Both effects are conflicting when it comes to their impact on the critical pro-portion of high risks required for a Rothschild-Stiglitz equilibrium to exist and social welfare. We derive conditions that allow to resolve the indeterminate social welfare effect.

Download or read book Competitive Insurance Markets I written by Peter S. Faynzilberg and published by . This book was released on 2006 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inter-firm rivalry and its impact on the stationarity of the economy are formalized in terms of selective efficiency that extends the Pareto and the Caldor-Hicks efficiency comparisons. Nash equilibrium of agents' decision-making is shown to be sufficient for an economy to be in equilibrium. Conversely, the extant practice of reliance on ad hoc quot;concepts of equilibriumquot; renders the resulting models overspecified. The ensuing loss of internal consistency explains the absence of a putative equilibrium in Rothschild and Stiglitz (1976), commonly interpreted as extreme market failure.

Download or read book Equilibrium in Competitive Insurance Markets written by Richard Arnott and published by . This book was released on 1982 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: