Regulation Design in Insurance Markets

31 Pages Posted: 17 Dec 2019

See all articles by Dhruva Bhaskar

Dhruva Bhaskar

Queen Mary University of London

Andrew McClellan

University of Chicago - Booth School of Business - Economics

Evan Sadler

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: December 13, 2019

Abstract

Regulators often impose rules that constrain the behavior of market participants. We study optimal regulation design in an insurance market. A regulator restricts the set of contracts a firm is allowed to offer. The firm offers a permitted menu to each agent, and the agent chooses a contract from the menu. The regulator seeks to maximize agent welfare. We show that under a risk-ordering condition, the regulator can implement her first-best allocation - all agents obtain full insurance at a constant price - using a collection of two-option menus. When the regulator has more limited enforcement power, we show that insurance mandates may harm welfare.

Suggested Citation

Bhaskar, Dhruva and McClellan, Andrew and Sadler, Evan, Regulation Design in Insurance Markets (December 13, 2019). Available at SSRN: https://ssrn.com/abstract=3501883 or http://dx.doi.org/10.2139/ssrn.3501883

Dhruva Bhaskar (Contact Author)

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

Andrew McClellan

University of Chicago - Booth School of Business - Economics ( email )

Graduate School of Business
1101 East 58th Street
Chicago, IL 60637
United States

Evan Sadler

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
35
Abstract Views
259
PlumX Metrics