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Minimum Coverage Regulation in Insurance Markets

Daniel McFadden, Carlos Noton and Pau Olivella ()

No 301, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: We study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single firm monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, "subsidize" insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all firms just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions.

New Economics Papers: this item is included in nep-cdm, nep-cta, nep-ias, nep-mic and nep-spo
Date: 2013
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Journal Article: Minimum coverage regulation in insurance markets (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:301

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