Bilateral information disclosure in adverse selection markets with nonexclusive competition

Andrew Kosenko, Joseph Stiglitz and Jungyoll Yun

Journal of Economic Behavior & Organization, 2023, vol. 205, issue C, 144-168

Abstract: We study insurance markets with nonexclusive contracts, introducing bilateral endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under remarkably mild conditions and characterize the unique equilibrium allocation. With two types of consumers the allocation consists of a pooling contract that maximizes the well-being of the low-risk type (along the zero-profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high-risk type to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Consumer disclosure and asymmetric equilibrium information flows are critical in supporting the equilibrium.

Keywords: Adverse selection; Nonexclusivity; Nonexclusive competition; Rothschild–Stiglitz; Asymmetric information; Verifiable disclosure (search for similar items in EconPapers)
JEL-codes: D43 D82 D86 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:205:y:2023:i:c:p:144-168

DOI: 10.1016/j.jebo.2022.10.015

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