Hidden insurance in a moral-hazard economy

Giuseppe Bertola and Winfried Koeniger

RAND Journal of Economics, 2015, vol. 46, issue 4, 777-790

Abstract: type="main">

We analyze the general equilibrium of an economy in which a competitive industry produces nonexclusive insurance services. The equilibrium is inefficient because insurance contracts cannot control moral hazard, and welfare can be improved by policies that reduce insurance by increasing its price above marginal cost. We discuss how insurance production costs that exceed expected claim payments interact with moral hazard in determining the equilibrium's inefficiency, and show that these costs can make insurance premia so actuarially unfair as to validate the standard first-order conditions we exploit in our analysis.

Date: 2015
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Related works:
Working Paper: Hidden Insurance in a Moral Hazard Economy (2014)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013)
Working Paper: Hidden insurance in a moral hazard economy (2013)
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