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How an All-or-Nothing insurance behaviour challenges economic policies: an experimental approach

Author

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  • Anne Corcos
  • François Pannequin
  • Claude Montmarquette

Abstract

Based on experimental data, this paper confirms, in a controlled environment, converging theoretical and empirical results that, when individuals insure, they choose to insure themselves with a full cover. This insurance behaviour creates an opportunity for the public authority to drive people to enter the insurance market where they would buy full insurance. This paper also sheds light on the risks of an opportunistic insurers’ behaviour. This heuristic challenges the efficiency of separating contracts designed to address adverse selection issues. Indeed, a strong preference for full contracts may encourage low-risk individuals to turn to (full) contracts designed for high-risk individuals, yielding advantageous selection opportunities for insurers. However, if this heuristic strengthens the high-risks’ reluctance for partial insurance, it may increase the efficiency of the separating contracts, and the low-risk individuals suffer less from adverse selection.

Suggested Citation

  • Anne Corcos & François Pannequin & Claude Montmarquette, 2021. "How an All-or-Nothing insurance behaviour challenges economic policies: an experimental approach," Economic and Political Studies, Taylor & Francis Journals, vol. 9(1), pages 4-16, January.
    • Handle: RePEc:taf:repsxx:v:9:y:2021:i:1:p:4-16
    DOI: 10.1080/20954816.2020.1815397
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