DP9753 Facilitating Consumer Learning in Insurance Markets?What Are the Welfare Effects?
|Author(s):||Johan N. M. Lagerlöf, Christoph Schottmüller|
|Publication Date:||November 2013|
|Keyword(s):||adverse selection, asymmetric information, information acquisition, insurance, screening|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=9753|
What are the welfare effects of a policy that facilitates for insurance customers to privately and covertly learn about their accident risks? We endogenize the information structure in Stiglitz's classic monopoly insurance model. We first show that his results are robust: For a small information acquisition cost c, the consumer gathers information and the optimal contracts are close to the ones in the Stiglitz model. If c is so low that the consumer already gathers information (c