An insurance contract with a low compensation period under adverse selection

Ben-jiang Ma, Chun-guang Qiu and Wen-jie Bi

Information Economics and Policy, 2015, vol. 31, issue C, 67-74

Abstract: Adverse selection has a significant influence on trading efficiency in insurance markets. Inspired by the quality identification function of the probation period in the secondhand car market, an insurance contract with a low compensation period is designed. It is proved that the contract can distinguish the risk types of the policyholders to achieve a separating equilibrium. And it can make a strict Pareto improvement to the traditional partial insurance contract under certain conditions. Finally, an example is given to demonstrate the conclusions.

Keywords: Adverse selection; Asymmetric information; Separating equilibrium; Pareto improvement (search for similar items in EconPapers)
JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:31:y:2015:i:c:p:67-74

DOI: 10.1016/j.infoecopol.2015.04.005

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