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The Probationary Period as a Screening Device: The Monopolistic Insurer

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  • Jaap Spreeuw

    (Cass Business School, Faculty of Actuarial Science and Statistics, 106 Bunhill Row, London EC1Y 8TZ, UK)

Abstract

Stiglitz [1977], considering asymmetry of information in a monopolistic insurance market and the monetary deductible as a screening device, shows that an equilibrium is always of a separating type. High risks buy complete insurance whilst low risks buy partial insurance. In this paper, we show that a pooling equilibrium may exist if a probationary period, rather than the partial coverage in monetary terms, is used as a screening device. The Geneva Risk and Insurance Review (2005) 30, 5–14. doi:10.1007/s10836-005-1104-5

Suggested Citation

  • Jaap Spreeuw, 2005. "The Probationary Period as a Screening Device: The Monopolistic Insurer," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(1), pages 5-14, June.
    • Handle: RePEc:pal:genrir:v:30:y:2005:i:1:p:5-14
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    References listed on IDEAS

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    1. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 407-430.
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    Cited by:

    1. Ben‐jiang Ma & Jing‐yu Ye & Geng Liu & Yuan‐ji Huang, 2020. "Adverse selection, limited compensation, and the design of environmental liability insurance contract in the case of enterprise bankruptcy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1327-1337, October.
    2. Jaap Spreeuw & Martin Karlsson, 2009. "Time Deductibles as Screening Devices: Competitive Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(2), pages 261-278, June.
    3. Ben‐jiang Ma & Jing‐yu Ye & Yuan‐ji Huang & Muhammad Farhan Bashir, 2020. "Research of two‐period insurance contract model with a low compensation period under adverse selection," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 293-307, April.
    4. Ma, Ben-jiang & Qiu, Chun-guang & Bi, Wen-jie, 2015. "An insurance contract with a low compensation period under adverse selection," Information Economics and Policy, Elsevier, vol. 31(C), pages 67-74.

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