Multidimensional private information, market structure, and insurance markets

Hanming Fang and Zenan Wu

RAND Journal of Economics, 2018, vol. 49, issue 3, 751-787

Abstract: We investigate whether selection based on multidimensional private information in risks and risk preferences can, under different market structures, result in a negative correlation between insurance coverage and ex post realization of risk. We show that, under perfect competition, selection based on multidimensional private information does not result in the negative correlation property, unless there is a sufficiently high loading factor. However, it is possible to generate the negative correlation property under monopoly when risk and risk preference types are sufficiently negative dependent. We also clarify the connections between important concepts such as adverse/advantageous selection and positive/negative correlation property.

Date: 2018
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Citations: View citations in EconPapers (14)

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https://doi.org/10.1111/1756-2171.12251

Related works:
Working Paper: Multidimensional Private Information, Market Structure and Insurance Markets (2016)
Working Paper: Multidimensional Private Information, Market Structure and Insurance Markets (2016)
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