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Welfare analysis in insurance markets

Author

Listed:
  • Casey Rothschild

    (Wellesley College)

Abstract

“Efficiency” in economics can be employed in two distinct ways: as a statement about the class of policies that all policy advisors would agree to, regardless of their views about distributional preferences; or as something valuable that policy advisors potentially need to trade-off against equity goals. This distinction can be safely put to the side in some settings, for instance when information is symmetric, individuals have linear-in-consumption preferences, and the planner can implement person-specific taxes and transfers. In asymmetric information settings like insurance markets, it cannot. The efficiency notion employed by Einav and Finkelstein (J Econ Perspect 25(1):115–138, 2011) for studying competitive insurance markets (EF-efficiency) can therefore only be understood in the second way, and policy recommendations based on EF-efficiency alone thus amount to a tacit expression of indifference to distributional concerns.

Suggested Citation

  • Casey Rothschild, 2024. "Welfare analysis in insurance markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(1), pages 36-58, March.
    • Handle: RePEc:pal:genrir:v:49:y:2024:i:1:d:10.1057_s10713-024-00096-7
    DOI: 10.1057/s10713-024-00096-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Size of the pie; Efficiency-equity tradeoffs; Constrained Pareto frontier; Second best efficiency;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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