On the Role of Patience in an Insurance Market With Asymmetric Information

Michael Sonnenholzner and Achim Wambach

Journal of Risk & Insurance, 2009, vol. 76, issue 2, 323-341

Abstract: We analyze a two‐period competitive insurance market that is characterized by the simultaneous presence of moral hazard and adverse selection with regard to consumer time preferences. It is shown that there exists an equilibrium in which patient consumers use high effort and buy an insurance contract with high coverage, whereas impatient consumers use low effort and buy a contract with low coverage or even remain uninsured. This finding may help to explain why the opposite of adverse selection with regard to risk types can sometimes be observed empirically.

Date: 2009
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https://doi.org/10.1111/j.1539-6975.2009.01301.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:76:y:2009:i:2:p:323-341

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