Efficient Competition in Insurance Markets
13 Pages Posted: 30 Sep 2015 Last revised: 8 May 2017
Date Written: May 7, 2017
I construct an efficient game of competition for insurance markets with adverse selection. In the game, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. A private menu concerns only the company that offers it. I show that this simple game reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.
Keywords: adverse selection, insurance, competition, existence, efficiency
JEL Classification: D02, D82, D86
Suggested Citation: Suggested Citation