Characterization and uniqueness of equilibrium in competitive insurance

Vitor Farinha Luz ()
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Vitor Farinha Luz: Vancouver School of Economics, University of British Columbia

Theoretical Economics, 2017, vol. 12, issue 3

Abstract: This paper provides a complete characterization of equilibria in a game-theoretic version of Rothschild and Stiglitz (1976)’s model of competitive insurance. I allow for stochastic contract offers by insurance firms and show that a unique symmetric equilibrium always exists. Exact conditions under which the equilibrium involves mixed strategies are provided. The mixed equilibrium features: (i) cross-subsidization across risk levels, (ii) dependence of offers on the risk distribution and (iii) price dispersion generated by firm randomization over offers.

Keywords: Asymmetric and private information; mechanism design; oligopoly; economics of contracts; insurance (search for similar items in EconPapers)
JEL-codes: C72 D43 D82 D86 G22 (search for similar items in EconPapers)
Date: 2017-09-26
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