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Competitive Screening in Insurance Markets with Endogenous Wealth Heterogeneity

Nick Netzer () and Florian Scheuer ()

No 907, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.

Keywords: Insurance Markets; Adverse Selection; Multidimensional Screening (search for similar items in EconPapers)
JEL-codes: D82 G22 J22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-04, Revised 2009-06
New Economics Papers: this item is included in nep-bec, nep-cta, nep-ias and nep-lab
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Citations: View citations in EconPapers (6) Track citations by RSS feed

Published in Economic Theory 44, pp. 187-211, 2010

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http://www.econ.uzh.ch/static/wp_soi/wp0907.pdf revised version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0907

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