Optimal risk-sharing under adverse selection and imperfect risk perception

Arnold Chassagnon and Bertrand Villeneuve
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Arnold Chassagnon: GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique

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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.

Date: 2005-08
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Citations: View citations in EconPapers (4)

Published in Canadian Journal of Economics, 2005, 38 (3), pp.955-978. ⟨10.1111/j.0008-4085.2005.00311.x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754069

DOI: 10.1111/j.0008-4085.2005.00311.x

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