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Coalition-Proof Allocations in Adverse-Selection Economies

Author

Listed:
  • Jeffrey M. Lacker

    (Research Department, Federal Reserve Bank of Richmond, Richmond, VA 23261)

  • John A. Weinberg

    (Research Department, Federal Reserve Bank of Richmond, Richmond, VA 23261)

Abstract

We reexamine the canonical adverse selection insurance economy first studied by Rothschild and Stiglitz [1976]. We define blocking in a way that takes private information into account and define a coalition-proof correspondence as a mapping from coalitions to allocations with the property that allocations are in the correspondence, if and only if, they are not blocked by any other allocations in the correspondence for any subcoalition. We prove that the Miyazaki allocation—the Pareto-optimal allocation (possibly cross-subsidized) most preferred by low-risk agents—is coalition-proof. The Geneva Papers on Risk and Insurance Theory (1999) 24, 5–17. doi:10.1023/A:1008762430952

Suggested Citation

  • Jeffrey M. Lacker & John A. Weinberg, 1999. "Coalition-Proof Allocations in Adverse-Selection Economies," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 24(1), pages 5-17, June.
    • Handle: RePEc:pal:genrir:v:24:y:1999:i:1:p:5-17
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    Citations

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    Cited by:

    1. Dionne, G. & Doherty, N., 1991. "Adverse Selection In Insurance Markets: A Selective Survey," Cahiers de recherche 9105, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Wanda Mimra & Achim Wambach, 2014. "New Developments in the Theory of Adverse Selection in Competitive Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 136-152, September.
    3. Dionne, Georges & Fombaron, Nathalie & Doherty, Neil, 2012. "Adverse selection in insurance contracting," Working Papers 12-8, HEC Montreal, Canada Research Chair in Risk Management.
    4. Wanda Mimra & Achim Wambach, 2011. "A Game-Theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection," CESifo Working Paper Series 3412, CESifo.
    5. Wanda Mimra & Achim Wambach, 2019. "Contract withdrawals and equilibrium in competitive markets with adverse selection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 875-907, June.

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