On the role of patience in an insurance market with asymmetric information

Michael Sonnenholzner and Achim Wambach

No 2007/04, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We analyse a 2-period competitive insurance market which is characterized by the simultaneous presence of standard moral hazard and adverse selection with regard to consumer time preferences. It is shown that there exists an equilibrium in which patient consumers use high effort and buy a profit-making insurance contract with high coverage, whereas impatient consumers use low effort and buy a contract with low coverage or even remain uninsured. This finding may help to explain why positive profits and the opposite of adverse selection with regard to risk types can sometimes be observed empirically.

Keywords: Insurance; Patience; Adverse Selection; Moral Hazard (search for similar items in EconPapers)
JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2006
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Related works:
Journal Article: On the Role of Patience in an Insurance Market With Asymmetric Information (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200704

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