Optimal risk‐sharing under adverse selection and imperfect risk perception

Arnold Chassagnon and Bertrand Villeneuve

Canadian Journal of Economics/Revue canadienne d'économique, 2005, vol. 38, issue 3, 955-978

Abstract: Abstract. The present paper thoroughly explores second‐best efficient allocations in an insurance economy with adverse selection. We start with a natural extension of the classical model, assuming less than perfect risk perception. We characterize the constraints on efficient redistribution, and we summarize the incidence of incentives on the economy with the notions of weak and strong adverse selection. Finally, we show in what sense improving risk perception enhances welfare. Partage optmal du risque avec antisélection et perception imparfaite du risque. Cet article examine en détail les allocations d’assurance de second‐rang dans une économie soumise à l’antisélection. Partant d’une extension naturelle du modèle classique, nous supposons une perception imparfaite du risque. Nous caractérisons les contraintes qui s’exercent sur la redistribution des richesses et nous résumons les différentes possibilités grâce aux notions d’antisélection faible et d’antisélection forte. Pour finir, nous montrons en quel sens l’amélioration de la perception du risque améliore le bien‐être.

Date: 2005
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https://doi.org/10.1111/j.0008-4085.2005.00311.x

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Journal Article: Optimal risk-sharing under adverse selection and imperfect risk perception (2005)
Working Paper: Optimal risk-sharing under adverse selection and imperfect risk perception (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:38:y:2005:i:3:p:955-978

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