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An Evolutionary Analysis of Insurance Markets

Ana Ania (), Thomas Tröger () and Achim Wambach ()
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Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: Since the seminal work by Rothschild and Stiglitz on competitive insurance markets under adverse selection the problem of non-existence of equilibrium has puzzled many economists. In this paper we approach this problem from an evo- lutionary point of view. In a dynamic model insurance companies remove loss- making contracts from the market and copy pro t-making ones. Occasionally, they also experiment, adding new contracts or removing current ones arbitrarily. We show that the Rothschild-Stiglitz outcome arises in the long run if it consti- tutes an equilibrium in the static framework, but also if it is not an equilibrium, provided that rms only experiment with contracts in the vicinity of their current portfolio.

JEL-codes: C70 C72 D82 G22 L1 (search for similar items in EconPapers)
Date: 1989-08
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