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Monopoly Insurance And Endogenous Information

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  • Johan N. M. Lagerlöf
  • Christoph Schottmüller

Abstract

We study a monopoly insurance model with endogenous information acquisition. Through a continuous effort choice, consumers can determine the precision of a privately observed signal that is informative about their accident risk. The equilibrium effort is, depending on parameter values, either zero (implying symmetric information) or positive (implying privately informed consumers). Regardless of the nature of the equilibrium, all offered contracts, also at the top, involve underinsurance, which discourages information gathering. We identify a missorting effect that explains why the insurer wants to discourage information acquisition. Moreover, lower information gathering costs can hurt both consumer and insurer.

Suggested Citation

  • Johan N. M. Lagerlöf & Christoph Schottmüller, 2018. "Monopoly Insurance And Endogenous Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 233-255, February.
    • Handle: RePEc:wly:iecrev:v:59:y:2018:i:1:p:233-255
    DOI: 10.1111/iere.12268
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    Cited by:

    1. Terneus Páez, Carlos Francisco & Viteri Salazar, Oswaldo, 2021. "Analysis of biofuel production in Ecuador from the perspective of the water-food-energy nexus," Energy Policy, Elsevier, vol. 157(C).

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