Regulation Design in Insurance Markets
55 Pages Posted: 17 Dec 2019 Last revised: 20 May 2023
Date Written: December 13, 2019
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: Suggested Citation