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- Title
Competitive screening in insurance markets with endogenous wealth heterogeneity.
- Authors
Netzer, Nick; Scheuer, Florian
- Abstract
We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high-risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.
- Subjects
ECONOMIC equilibrium; LABOR supply; MATHEMATICAL models; LABOR economics; INSURANCE exchanges; UTILITY functions; MATHEMATICAL statistics; FINANCIAL risk; INSURANCE
- Publication
Economic Theory, 2010, Vol 44, Issue 2, p187
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-009-0481-x