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Public versus private insurance system with (and without) transaction costs: optimal segmentation policy of an informed monopolist

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  • Yann Braouezec

Abstract

Computer-mediated transactions allow insurance companies to customize their contracts, while transaction costs limit this tendency toward customization. To capture this phenomenon, we develop a complete-information framework in which it is costly to design a new market segment when the segmentation policy (number and design of segments) is endogenously chosen. Both the case of a private and a public insurer are considered. Without transaction costs, these two insurance systems are equivalent in terms of social welfare and participation. With transaction costs, this equivalence is no longer present, and the analysis of this difference is the subject of this article.

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  • Yann Braouezec, 2019. "Public versus private insurance system with (and without) transaction costs: optimal segmentation policy of an informed monopolist," Applied Economics, Taylor & Francis Journals, vol. 51(18), pages 1907-1928, April.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:18:p:1907-1928
    DOI: 10.1080/00036846.2018.1529402
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    Cited by:

    1. Yann Braouezec & John Cagnol, 2023. "Theoretical Foundations of Community Rating by a Private Monopolist Insurer: Framework, Regulation, and Numerical Analysis," Papers 2309.15269, arXiv.org, revised Dec 2023.
    2. Matteo Brachetta & Claudia Ceci, 2021. "Optimal Reinsurance Problem under Fixed Cost and Exponential Preferences," Mathematics, MDPI, vol. 9(4), pages 1-20, February.

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