Multiple Contracting in Insurance Markets

57 Pages Posted: 14 Nov 2016

See all articles by Andrea Attar

Andrea Attar

Toulouse School of Economics; University of Roma Tor Vergata

Thomas Mariotti

University of Toulouse I

Francois Salanie

National Institute for Agricultural Research (INRA); University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: November 2016

Abstract

We study insurance markets in which privately informed consumers can purchase coverage from several insurers. Under adverse selection, multiple contracting severely restricts feasible trades. Indeed, only one budget-balanced allocation is implementable by an entry-proof tariff, and each layer of coverage must be fairly priced given the consumer types who purchase it. This allocation is the unique equilibrium outcome of a game in which cross-subsidies between contracts are prohibited. Equilibrium contracts exhibit quantity discounts and negative correlation between risk and coverage. Public intervention should target insurers' strategic behavior, while consumers can be left free to choose their preferred amount of coverage.

Keywords: Adverse Selection, Insurance Markets, Multiple Contracting

JEL Classification: D43, D82, D86

Suggested Citation

Attar, Andrea and Mariotti, Thomas and Salanie, Francois, Multiple Contracting in Insurance Markets (November 2016). CEPR Discussion Paper No. DP11631. Available at SSRN: https://ssrn.com/abstract=2869086

Andrea Attar (Contact Author)

Toulouse School of Economics

21, allée de Brienne
Toulouse, F 31000
France
+33 5 61128578 (Phone)

University of Roma Tor Vergata ( email )

2 Via Columbia
00100 Rome
Italy

Thomas Mariotti

University of Toulouse I ( email )

Toulouse, 31000
France

Francois Salanie

National Institute for Agricultural Research (INRA) ( email )

21, Allee de Brienne
31000 Toulouse
France

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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