Theoretical Foundations of Community Rating by a Private Monopolist Insurer: Framework, Regulation, and Numerical Analysis

Yann Braouezec and John Cagnol

Papers from arXiv.org

Abstract: Community rating is a policy that mandates uniform premium regardless of the risk factors. In this paper, our focus narrows to the single contract interpretation wherein we establish a theoretical framework for community rating using Stiglitz's (1977) monopoly model in which there is a continuum of agents. We exhibit profitability conditions and show that, under mild regularity conditions, the optimal premium is unique and satisfies the inverse elasticity rule. Our numerical analysis, using realistic parameter values, reveals that under regulation, a 10% increase in indemnity is possible with minimal impact on other variables.

Date: 2023-09, Revised 2023-12
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http://arxiv.org/pdf/2309.15269 Latest version (application/pdf)

Related works:
Working Paper: Theoretical Foundations of Community Rating by a Private Monopolist Insurer: Framework, Regulation, and Numerical Analysis (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2309.15269

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