Characterization and uniqueness of equilibrium in competitive insurance

Vitor Farinha Luz

This paper provides a complete characterization of equilibria in a game-theoretic version of Rothschild and Stiglitz's (1976) model of competitive insurance. I allow for stochastic contract offers by insurance firms and show that a unique symmetric equilibrium always exists. Exact conditions under which the equilibrium involves mixed strategies are provided. The mixed equilibrium features (i) cross-subsidization across risk levels, (ii) dependence of offers on the risk distribution, and (iii) price dispersion generated by firm randomization over offers.

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Year of publication:	September 2017
Authors:	Luz, Vitor Farinha
Published in:	Theoretical economics : TE ; an open access journal in economic theory. - Toronto : [Verlag nicht ermittelbar], ISSN 1555-7561, ZDB-ID 2220447-7. - Vol. 12.2017, 3, p. 1349-1391
Subject:	Asymmetric and private information \| mechanism design \| oligopoly \| economics of contracts \| insurance \| Asymmetrische Information \| Asymmetric information \| Oligopol \| Oligopoly \| Adverse Selektion \| Adverse selection \| Vertragstheorie \| Contract theory \| Mechanismus-Design-Theorie \| Mechanism design

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Type of publication:	Article
Type of publication (narrower categories):	Aufsatz in Zeitschrift ; Article in journal
Language:	English
Other identifiers:	10.3982/TE2166 [DOI] hdl:10419/197135 [Handle]
Classification:	C72 - Noncooperative Games ; D43 - Oligopoly and Other Forms of Market Imperfection ; D82 - Asymmetric and Private Information ; D86 - Economics of Contract: Theory ; G22 - Insurance; Insurance Companies
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011744297