Public versus Private Insurance System with (and without) Transaction Costs: Optimal Segmentation Policy of an Informed Monopolist

34 Pages Posted: 4 Dec 2013 Last revised: 25 Nov 2018

See all articles by Yann Braouezec

Yann Braouezec

IESEG School of Management, LEM CNRS, UMR 9221

Date Written: January 27, 2016

Abstract

Computer mediated transactions allow insurance companies to customize their contracts, while transaction costs limit this tendency toward customization. To capture this phenomenon, we develop a complete-information framework in which it is costly to design a new market segment when the segmentation policy (number and design of segments) is endogenously chosen. Both the case of a private and a public insurer are considered. Without transaction costs, these two insurance systems are equivalent in terms of social welfare and participation. With transaction costs, this equivalence is no longer present, and the analysis of this difference is the subject of this article.

Keywords: Insurance, participation, transaction costs, mixed-integer programming, social welfare

JEL Classification: D02, D040, C610

Suggested Citation

Braouezec, Yann, Public versus Private Insurance System with (and without) Transaction Costs: Optimal Segmentation Policy of an Informed Monopolist (January 27, 2016). Applied Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2362985 or http://dx.doi.org/10.2139/ssrn.2362985

Yann Braouezec (Contact Author)

IESEG School of Management, LEM CNRS, UMR 9221 ( email )

1, parvis de la Défense
Paris-La Défense cedex, 92044
France

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