Adverse Selection, Private Information, and Lowballing in Insurance Markets

Stephen P D'Arcy and Neil A Doherty

The Journal of Business, 1990, vol. 63, issue 2, 145-64

Abstract: Recent contributions to the adverse selection literature have focused on a multiperiod competitive environment. In this setting a clean distinction arises between the predictions of competing models. Cooper and Hayes extend the model of Rothschild and Stiglitz to multiple periods. The result is a self-selecting equilibrium characterized by price highballing, or systematically overcharging new business. Kunreuther and Pauly suggest that information asymmetries between competing insurance firms render such price-quantity policies infeasible. Their model results in a pooling equilibrium that is characterized by price lowballing, or systematically undercharging new business. Our evidence is consistent with the Kunreuther and Pauly model and reveals the persistence of adverse selection in the automobile insurance market. Copyright 1990 by the University of Chicago.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://dx.doi.org/10.1086/296500 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:63:y:1990:i:2:p:145-64

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().