Does Asymmetric Information matter in Competitive Insurance Markets?

Federico Etro ()

Rivista Internazionale di Scienze Sociali, 2004, vol. 112, issue 1, 27-46

Abstract: Does asymmetric information matter in insurance markets? Recent evidence on the automobile insurance market suggests not, rejecting the separating equilibnum of the Rothschild-Stiglitz model. However, I show that a two-penod version of that model can sustain a pooling equilibrium with experience rating which is consistent with the evidence and it mimics the bonus-malus policies of the automobile insurance markets. I also simulate the model showing that under reasonable conditions coordination failures emerge due to multiple equilibria.

Keywords: asymmetric infomation; adverse selection; insurance (search for similar items in EconPapers)
JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2004
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