When prices hardly matter: Incomplete insurance contracts and markets for repair goods

Martin Nell, Andreas Richter and Jörg Schiller ()

Discussion Papers in Business Administration from University of Munich, Munich School of Management

Abstract: This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequen¬ces of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured’s actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers, if repair markets are imperfect.

Keywords: insurance; incomplete contracts; repair markets (search for similar items in EconPapers)
JEL-codes: C72 D43 G22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-fin, nep-ias and nep-mic
Date: 2006
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Related works:
Working Paper: When prices hardly matter: Incomplete insurance contracts and markets for repair goods (2005)
Journal Article: When prices hardly matter: Incomplete insurance contracts and markets for repair goods (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:lmu:msmdpa:1187

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