English, Article, Journal or magazine article edition: Moral Hazard, Insurance and Some Collusion Ingela Alger; Ching-to Albert Ma

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Bookmark: http://trove.nla.gov.au/version/44815
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Moral Hazard, Insurance, and Some Collusion
Author
  • Ingela Alger
  • Ching-to Albert Ma
Physical Description
  • preprint
Notes
  • A risk-averse consumer purchases an insurance policy, if she suffers a loss, she may receive services from a provider to recover some of the loss. Only the consumer and the provider know if the loss has actually occurred. The providers behaviour is uncertain. With some positive probability, the provider is honest, reporting the loss information truthfully to the insurer, with the complementary probability, the provider reports, the information strategically, by writing a side-contract with the consumer to maximise the joint surplus of the provider-consumer coalition. We show there is a loss of generality in considering only collusion-proof contracts, and characterise equilibria implemented by collusion-proof and noncollusion-proof contracts. When the probability of a provider acting collusively is small, the equilibrium contract is not collusion-proof but approximately first-best. When the probability of a provider acting collusively is large, the equilibrium contract is independent of this probability and identical to the equilibrium collusion-proof contract when the provider is collusive with probability 1.
  • RePEc:fmg:fmgdps:dp318
  • A risk-averse consumer purchases an insurance policy; if she suffers a loss, she may receive services from a provider to recover some of the loss. Only the consumer and the provider know if the loss has actually occurred. The provider's behavior is uncertain. With some positive probability, the provider is honest, reporting the loss information truthfully to the insurer; with the complementary probability, the provider reports the information strategically, by writing a side-contract with the consumer to maximize the joint surplus of the provider-consumer coalition. We show that there is a loss of generality in considering only collusion-proof contracts, and characterize equilibria implemented by collusion-proof and noncollusion-proof contracts. When the probability of a provider acting collusively is small, the equilibrium contract is not collusion-proof but approximately first-best. When the probability of a provider acting collusively is large, the equilibrium contract is independent of this probability and identical to the equilibrium collusion-proof contract when the provider is collusive with probability 1.
  • insurance, moral hazard, optimal contracts, honesty and dishonesty
  • RePEc:boc:bocoec:496
Language
  • English
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