Time Deductibles as Screening Devices: Competitive Markets

18 Pages Posted: 5 May 2009

See all articles by Jaap Spreeuw

Jaap Spreeuw

City University London - Sir John Cass Business School

Martin Karlsson

affiliation not provided to SSRN

Abstract

Seminal papers on asymmetric information in competitive insurance markets, analyzing the monetary deductible as a screening device, show that any existing equilibrium is of a separating type. High risks buy complete insurance, whereas low risks buy partial insurance - and this result holds for the Nash behavior as well as for the Wilson foresight. In this article, we analyze the strength of screening based on limitations to the period of coverage of the contract. We show that in this case (1) the Nash equilibrium may entail low risks not purchasing any insurance at all, and (2) under the Wilson foresight, a pooling equilibrium may exist.

Suggested Citation

Spreeuw, Jaap and Karlsson, Martin, Time Deductibles as Screening Devices: Competitive Markets. Journal of Risk and Insurance, Vol. 76, Issue 2, pp. 261-278, June 2009. Available at SSRN: https://ssrn.com/abstract=1399102 or http://dx.doi.org/10.1111/j.1539-6975.2009.01298.x

Jaap Spreeuw (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Martin Karlsson

affiliation not provided to SSRN ( email )

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