Multidimensional Screening in a Monopolistic Insurance Market

Pau Olivella and Fred Schroyen ()
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Fred Schroyen: Department of Economics, NHH Norwegian School of Economics, Helleveien 30, Bergen N-5045, Norway.

The Geneva Risk and Insurance Review, 2014, vol. 39, issue 1, 90-130

Abstract: We consider a population of individuals who differ in two dimensions, their risk type (expected loss) and their risk aversion, and solve for the profit-maximising menu of contracts that a monopolistic insurer puts out on the market. Our findings are threefold. First, it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, because women tend to be more risk averse than men (in that the risk aversion distribution for women first-order stochastically dominates that for men), gender discrimination may lead to a Pareto improvement.

Date: 2014
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Related works:
Working Paper: Multidimensional Screening in a Monopolistic Insurance Market (2015)
Working Paper: Multidimensional screening in a monopolistic insurance market (2011)
Working Paper: Multidimensional screening in a monopolistic insurance market (2011)
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