Multidimensional Screening in a Monopolistic Insurance Market

Fred Schroyen and Pau Olivella

No 619, Working Papers from Barcelona School of Economics

Abstract: In this paper, we consider a population of individuals who differ in two dimensions: their risk type (expected loss) and their risk aversion. We solve for the profit maximizing menu of contracts that a monopolistic insurer puts out on the market. First, we find that it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, we show that when the average man and woman differ only in risk aversion, gender discrimination may lead to a Pareto improvement.

Keywords: asymmetric Information; Screening; insurance markets; gender discrimination; positive correlation test (search for similar items in EconPapers)
JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cta, nep-hea, nep-ias, nep-mic and nep-upt
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Related works:
Journal Article: Multidimensional Screening in a Monopolistic Insurance Market (2014)
Working Paper: Multidimensional screening in a monopolistic insurance market (2011)
Working Paper: Multidimensional screening in a monopolistic insurance market (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:619

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