Competitive Insurance Markets Ii: The Structure of Equilibrium and Comparative Statics

34 Pages Posted: 22 May 2006

Date Written: May 2006

Abstract

Under the conditions conjectured by Rothschild and Stiglitz (1976) as leading to extreme market failure, we show the existence of a unique incentive-efficient equilibrium. In terms of its sensitivity to the structure of the buyer population, this equilibrium may be flexible or rigid. Closed-form illustrations of equilibria and the solution methodology, which is based on the characterization of Nash equilibrium in terms of selective efficiency (Faynzilberg, 2003), are also provided.

Keywords: adverse selection, efficiency, incomplete information, risk-sharing

JEL Classification: C72. C78, D41, D43, D45, D82, G22

Suggested Citation

Faynzilberg, Peter S., Competitive Insurance Markets Ii: The Structure of Equilibrium and Comparative Statics (May 2006). Available at SSRN: https://ssrn.com/abstract=903643 or http://dx.doi.org/10.2139/ssrn.903643

Peter S. Faynzilberg (Contact Author)

The Aleph Group, LLC ( email )

DE 07024
United States

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