Discussion Paper Details

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Title: Regulating Insurance Markets: Multiple Contracting and Adverse Selection

Author(s): Andrea Attar, Thomas Mariotti and François Salanié

Publication Date: September 2021

Keyword(s): Adverse Selection, Insurance Markets, Multiple Contracting and Regulation

Programme Area(s): Financial Economics

Abstract: This paper studies an insurance market on which privately informed consumers can simultaneously trade with several firms operating under a regulation that prohibits cross-subsidies between contracts. The regulated game supports a single equilibrium allocation in which each layer of coverage is fairly priced given the consumer types who purchase it. This competitive allocation cannot be Pareto-improved by a social planner who observes neither consumers' types nor their trades with firms. Public intervention under multiple contracting and adverse selection should thus arguably target firms' pricing strategies, leaving consumers free to choose their preferred amount of coverage.

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Bibliographic Reference

Attar, A, Mariotti, T and Salanié, F. 2021. 'Regulating Insurance Markets: Multiple Contracting and Adverse Selection'. London, Centre for Economic Policy Research.