English, Article edition: Pooling and Separating Equilibria in Insurance Markets with Adverse Selection and Distribution Costs* Marie Allard; Jean-Paul Cresta; Jean-Charles Rochet

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  • article
Language
  • English

Edition details

Title
  • Pooling and Separating Equilibria in Insurance Markets with Adverse Selection and Distribution Costs&​ast;
Author
  • Marie Allard
  • Jean-Paul Cresta
  • Jean-Charles Rochet
Physical Description
  • article
Notes
  • In the Rothschild-Stiglitz [1976] model of a competitive insurance market with adverse selection, pooling equilibria cannot exist. However in practice, pooling contracts are frequent, notably in health insurance and life insurance. This is due to the fact that distribution costs are nonnegligible and increase rapidly when more contracts are offered. We modify accordingly the Rothschild-Stiglitz model by introducing such distribution costs. We find that, however small these costs may be, they entail possible existence of pooling equilibria. Moreover, in these pooling equilibria, it is the high-risk individuals who are rationed, in the sense that they would be willing to buy more insurance at the current premium/​insurance ratio. The Geneva Papers on Risk and Insurance Theory (1997) 22, 103–120. doi:10.1023/​A:1008664000457
  • RePEc:pal:genrir:v:22:y:1997:i:2:p:103-120
Language
  • English
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