Koufopoulos, Konstantinos and Kozhan, Roman (2014) Welfare-improving ambiguity in insurance markets with asymmetric information. Journal of Economic Theory. 551 - 560. ISSN 0022-0531
Abstract
We consider a model of competitive insurance markets involving both asymmetric information and ambiguity about the accident probability. We show that there can exist a full-insurance pooling equilibrium. We also present an example where an increase in ambiguity leads to a strict Pareto improvement. Higher ambiguity relaxes high-risks’ incentive compatibility constraint and allows low risks to buy more insurance. Higher ambiguity also deteriorates low risks’ expected utility from holding an uncertain prospect. If the former effect dominates, the expected utility of low risks increases and given that high risks’ utility remains unaffected, the increase in ambiguity implies a strict Pareto improvement.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Keywords: | Ambiguity aversion,Asymmetric information,Welfare improvement |
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: | 18 Sep 2019 13:20 |
Last Modified: | 08 Feb 2025 00:34 |
Published Version: | https://doi.org/10.1016/j.jet.2013.11.003 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1016/j.jet.2013.11.003 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:151038 |
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Filename: Welfare_improving_ambiguity_in_insurance_markets_with_asymmetric_information_JET_May_2014_.pdf
Description: Welfare-improving ambiguity in insurance markets with asymmetric information (JET, May 2014)