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Linear price equilibria in a non-exclusive insurance market

Frédéric Loss and Gwenaël Piaser

Journal of Mathematical Economics, 2019, vol. 81, issue C, 22-30

Abstract: We consider a competitive insurance market in which agents can privately enter into multi-contractual insurance relationships and undertake hidden actions. We study the existence of a linear equilibrium when insurance companies have no restrictions on their pricing rules. For CARA utility functions, we show that a linear equilibrium always exists. For DARA utility functions, we provide sufficient conditions under which a linear equilibrium exists. We show that the linear equilibrium is unique, actuarially unfair, and induces partial insurance coverage. Lastly, we show that the linear equilibrium is always third-best efficient.

Keywords: Common agency; Insurance; Moral hazard; Perfect competition; Linear price equilibria (search for similar items in EconPapers)
Date: 2019
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