Information design in competitive insurance markets
- Author(s)
- Daniel Garcia, Matan Tsur
- Abstract
This paper characterizes the optimal information structure in competitive insurance markets with adverse selection. We consider a regulator that assigns ratings to individuals according to their expected costs. Insurers observe these ratings and compete as in Akerlof (1970). The optimal rating system minimizes ex-ante risk subject to participation constraints. We prove that in any such market there exists a unique optimal system under which all individuals trade and the ratings match low-cost types with high-cost types negative assortatively. We provide a simple algorithm that yields the optimal system and examine implications for government regulations of insurance markets.
- Organisation(s)
- Department of Economics
- External organisation(s)
- CESifo Research Network, University of Bristol
- Journal
- Journal of Economic Theory
- Volume
- 191
- No. of pages
- 18
- ISSN
- 0022-0531
- DOI
- https://doi.org/10.1016/j.jet.2020.105160
- Publication date
- 11-2020
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502047 Economic theory, 502021 Microeconomics
- Keywords
- ASJC Scopus subject areas
- Economics and Econometrics
- Portal url
- https://ucris.univie.ac.at/portal/en/publications/information-design-in-competitive-insurance-markets(1eb89c0f-b620-4515-b3c8-1123a151751d).html