Regulation Design in Insurance Markets

51 Pages Posted: 17 Dec 2019 Last revised: 17 Nov 2022

See all articles by Dhruva Bhaskar

Dhruva Bhaskar

Baruch College, CUNY

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 the design of regulatory policy in an insurance market as a delegation problem. A regulator restricts the menus of contracts an informed firm is permitted to offer, the firm offers a permitted menu to each consumer, and consumers choose contracts from offered menus. If consumer types and firm signals are ordered in a way that reflects coverage need, the regulator can leverage the firm's information by forcing the firm to offer specified additional options on each menu. Several extensions illustrate the practical application of our results.

Keywords: Regulation design, insurance, deviation contract

JEL Classification: D82, D47

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)

Baruch College, CUNY ( email )

Zicklin School of Business, Baruch College, CUNY
55 Lexington Avenue
New York, NY 10010
United States

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

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