Author: William JackPublisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 48
Book Description
Equilibrium in Competitive Insurance Markets with Ex Ante Adverse Selection and Ex Post Moral Hazard
Author: William JackPublisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 48
Book Description
Optimality and Equilibrium In a Competitive Insurance Market Under Adverse Selection and Moral Hazard
Author: Joseph E. StiglitzPublisher:
ISBN:
Category : Economics
Languages : en
Pages :
Book Description
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.
Equilibrium in Competitive Insurance Markets with Moral Hazard
Author: Richard ArnottPublisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 41
Book Description
Equilibrium in competitive insurance markets with moral hazard
Author: Richard ArnottPrice Equilibrium, Efficiency, and Decentralizability in Insurance Markets
Author: Richard ArnottPublisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 80
Book Description
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
Equilibrium in Competitive Insurance Markets with Moral Hazard
Author: Equilibrium in Competitive Insurance Markets : the Welfare Economics of Moral Hazard. II. Existence and Nature of Equilibrium
Author: Arnott, Richard JPublisher: Kingston, Ont. : Institute for Economic Research, Queen's University
ISBN:
Category :
Languages : en
Pages : 43
Book Description
Equilibrium in Competitive Insurance Markets
Author: Richard ArnottPublisher:
ISBN:
Category : Competition
Languages : en
Pages : 43
Book Description
Existence of Equilibria in Competitive Insurance Markets
Author: Peter S. FaynzilbergPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
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.
Insurance Contracting with the Coexistence of Adverse Selection and Moral Hazard
Author: Zhiqiang YanPublisher:
ISBN:
Category :
Languages : en
Pages : 40
Book Description
The asymmetric information problem has been widely discussed in the context of insurance markets. Most of previous research usually treats adverse selection and moral hazard separately, though it is quite possible that they may coexist and interact with each other. In this paper, we build a principal-agent model to examine optimal contracts in a competitive insurance market facing adverse selection and moral hazard simultaneously. We apply the change-of-variable method and the Kuhn-Tucker conditions to solve the optimization programs and find that there are several forms of separating Nash equilibria, although separating Nash equilibria may not exist. Our model brings richer equilibria and retains some properties in the benchmark models of pure adverse selection and pure moral hazard. For example, no agent is offered full insurance, and the positive correlation between insurance coverage and risk type still holds. Our study on comparative statics indicates that, under some conditions, the optimal indemnity and premium, in general, decrease with the disutility, increase with the potential loss and decrease with the intial wealth of the insured.