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Insurance monopoly and renegotiation (*)

Author

Listed:
  • Geir B. Asheim

    (Department of Economics, University of Oslo, N-0317 Oslo, NORWAY)

  • Tore Nilssen

    (Department of Economics, University of Oslo, N-0317 Oslo, NORWAY)

Abstract

The mechanism design problem of a monopoly insurer - faced with privately informed insurees - is considered. It is assumed that the insurer cannot commit not to renegotiate (by using the information that customer separa-tion reveals) before contracts are put into force. A solution is offered by modeling renegotiation-proofness in a framework inspired by Greenberg's theory of social situations. Maximizing profit within the set of renegotiation-proof outcomes always leads to a semi-separating outcome (i.e. neither full pooling nor full separation can occur) and may leave all low-risks as well as some of the high-risks self-insured.

Suggested Citation

  • Geir B. Asheim & Tore Nilssen, 1997. "Insurance monopoly and renegotiation (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(2), pages 341-354.
    • Handle: RePEc:spr:joecth:v:9:y:1997:i:2:p:341-354
    Note: Received: March 1, 1994; revised version September 16, 1995
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    Cited by:

    1. Gretschko, Vitali & Wambach, Achim, 2017. "Contract Design With Limited Commitment," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168269, Verein für Socialpolitik / German Economic Association.
    2. Krasa, Stefan, 1999. "Unimprovable Allocations in Economies with Incomplete Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 144-168, July.
    3. Arthur Snow, 2015. "Monopolistic Insurance and the Value of Information," Risks, MDPI, vol. 3(3), pages 1-13, July.
    4. Gretschko, Vitali & Wambach, Achim, 2015. "Common Values and the Coase Conjecture: Inefficiencies in Frictionless Contract (Re-)Negotiation," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113064, Verein für Socialpolitik / German Economic Association.

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