Koufopoulos, Konstantinos and Kozhan, Roman (2016) Optimal insurance under adverse selection and ambiguity aversion. Economic theory. 659–687. ISSN 0938-2259
Abstract
We consider a model of competitive insurance markets under asymmetric information with ambiguity-averse agents who maximize their maxmin expected utility. The interaction between asymmetric information and ambiguity aversion gives rise to some interesting results. First, for some parameter values, there exists a unique pooling equilibrium where both types of insurees buy full insurance. Second, in separating equilibria where the low risks are underinsured, their equilibrium contract involves more coverage than under standard expected utility. Finally, due to the endogeneity of commitment to the menus offered by insurers, our model has always an equilibrium which is unique (in terms of allocation) and interim incentive efficient (second-best).
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © Springer-Verlag Berlin Heidelberg 2015. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details. |
Keywords: | Adverse selection,Ambiguity aversion,Endogenous commitment |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 21 Aug 2019 12:30 |
Last Modified: | 08 Feb 2025 00:34 |
Published Version: | https://doi.org/10.1007/s00199-015-0926-3 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1007/s00199-015-0926-3 |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:149812 |
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Description: Optimal Insurance under Adverse Selection and Ambiguity Aversion (ET, 22-10-2015)