An Evolutionary Analysis of Insurance Markets

Ana B. Ania (), Thomas Tröger () and Achim Wambach ()
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Ana B. Ania: https://econ.univie.ac.at

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 evolutionary point of view. In a dynamic model insurance companies remove loss-making contracts from the market and copy profit-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 constitutes an equilibrium in the static framework, but also if it is not an equilibrium, provided that firms 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: 1998-08
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