Equilibrium with Monoline and Multiline Structures*

Uncertainty and the welfare economics of medical care

Rustam Ibragimov, Dwight Jaffee and Johan Walden

Review of Finance, 2018, vol. 22, issue 2, 595-632

Abstract: We study a competitive market for risk-sharing, in which risk-tolerant providers of risk protection, who face frictional costs in holding capital, offer coverage over a range of risk classes to risk-averse agents. We distinguish monoline and multiline industry structures and characterize when each structure is optimal. Markets for which the risks are limited in number, asymmetric or correlated will be served by monoline structures, whereas markets characterized by a large number of essentially independent risks will be served by many multiline firms. Our results are consistent with observed structures within insurance, and also have general implications for the financial services industry.

Keywords: Insurance; Financial services; Risk-sharing; Diversification (search for similar items in EconPapers)
JEL-codes: G2 G22 (search for similar items in EconPapers)
Date: 2018
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