The Nature of Equilibrium in Markets with Adverse Selection PDF Download
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Author: Charles Wilson
Publisher:
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Languages : en
Pages :
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Author: Charles Wilson
Publisher:
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Category :
Languages : en
Pages :
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Author: Jonathan A. K. Cave
Publisher: Rand Corporation
ISBN: 9780833005540
Category : Adverse selection (Insurance)
Languages : en
Pages : 71
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Book Description
This report examines possible outcomes of greater competition in insurance markets. The report describes the nature of insurance offerings in equilibrium if firms offer multiple policies; but it replaces the conventional assumption that each policy must earn nonnegative profits with the more realistic requirement that the portfolio of policies offered by the firm earn nonnegative profits in the aggregate. Theorems regarding the existence, optimality, and uniqueness of the subsidy equilibrium are presented, together with a simple characterization of the subsidy equilibrium and a comparison with existing equilibrium notions. Because the subsidy patterns, from low to high, that emerge under this formulation appear to characterize multiple-option insurance plans such as the Federal Employees Health Benefits Plan, this model may be more useful than conventional methods in the analysis of such plans.
Author: Anastasios Dosis
Publisher:
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Category :
Languages : en
Pages :
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Author: Colin Rose
Publisher:
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Category : Equilibrium (Economics)
Languages : en
Pages : 32
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Author: Tuomas Takalo
Publisher:
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Category :
Languages : en
Pages : 0
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Author: Tuomas Takalo
Publisher:
ISBN: 9789524620406
Category :
Languages : en
Pages : 45
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We study a financial market adverse selection model where all agents are endowed with initial wealth and choose to invest as entrepreneurs or financiers, or not to invest. We show that often a lack of outside finance leads to the emergence of financial markets where availability of outside finance leads to autarky. We find that i) there exist Pareto-efficient and inefficient equilibria; ii) adverse selection has more severe consequences for poorer economies; iii) increasing initial wealth may cause a shift from Pareto-efficient to inefficient equilibrium; iv) increasing the proportion of agents with positive NPV projects causes a shift from inefficient to efficient equilibrium; v) equilibrium financial contracts are either equity-like or 'pure' debt contracts; vi) agents with negative (positive) NPV projects earn rents only in (non- )wealth-constrained economies; vii) agents earn rents only when employing pure debt contracts; and viii) removing storage technology destroys the only Pareto-efficient equilibrium in non-wealth-constrained economies. Our model enables analysis of various policies concerning financial stability, the need for sophisticated financial institutions, development aid, and the promotion of entrepreneurship.
Author: Maarten Janssen
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Languages : en
Pages : 0
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We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations.
Author: James A. Ligon
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Languages : en
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Standard models of adverse selection in insurance markets assume policyholders know their loss distributions. This study examines the nature of equilibrium and the equilibrium value of information in competitive insurance markets where consumers lack complete information regarding their loss probabilities. We show that additional private information is privately and socially valuable. When the equilibrium policies separate types, policyholders can deduce the underlying probabilities from the contracts, so it is information on risk type, rather than loss probability per se, that is valuable. We show that the equilibrium is quot;as ifquot; policyholders were endowed with complete knowledge if, and only if, information is noiseless and costless. If information is noisy, the equilibrium depends on policyholders' prior beliefs and the amount of noise in the information they acquire.
Author: Georges Dionne
Publisher: Springer Science & Business Media
ISBN: 0792392043
Category : Business & Economics
Languages : en
Pages : 748
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Book Description
Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it was not possible to provide comprehensive coverage of insurance economics in this book, these readings provide an essential foundation to those who desire to conduct research and teach in the field. In particular, we hope that this compilation and our introduction will be useful to graduate students and to researchers in economics, finance, and insurance. Our criteria for selecting articles included significance, representativeness, pedagogical value, and our desire to include theoretical and empirical work. While the focus of the applied papers is on property-liability insurance, they illustrate issues, concepts, and methods that are applicable in many areas of insurance. The S. S. Huebner Foundation for Insurance Education at the University of Pennsylvania's Wharton School made this book possible by financing publication costs. We are grateful for this assistance and to J. David Cummins, Executive Director of the Foundation, for his efforts and helpful advice on the contents. We also wish to thank all of the authors and editors who provided permission to reprint articles and our respective institutions for technical and financial support.
Author: Heski Bar-Isaac
Publisher:
ISBN:
Category : Adverse selection (Insurance)
Languages : en
Pages : 42
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This paper explores how the structure of asymmetric information impacts on economic outcomes in Akerlof's (1970) Lemons model applied to the labor market and extended to admit a matching component between worker and firm. For efficiency, only good matches should be retained. We characterize the nature of equilibrium and show that, for any Gaussian information structure, both adverse selection and efficiency depend on the realization of information only through the conditional expectation of match value given public information. We derive a parsimonious parameterization of all Gaussian information structures and establish comparative statics results. Using this framework, we address five natural questions. What is the effect of more public information? Which information structures impose adverse selection efficiently, and inefficiently? What is the effect of more private information? When is there positive selection into outside firms? When is the average wage of released workers higher than the average wage of retained workers?
