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Adverse selection and optimum insurance policies

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  • Sheshinski, Eytan

Abstract

This paper considers how insurance companies choose a price schedule for policies depending on the size of these policies which are determined by households. Under asymmetric information, we analyse the tension between self-selection and the density distribution of household by accident probability. The profit maximizing policy is compared to the socially optimal policy.

Suggested Citation

  • Sheshinski, Eytan, 1977. "Adverse selection and optimum insurance policies," MPRA Paper 70329, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70329
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    References listed on IDEAS

    as
    1. Joanne Salop & Steven C. Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
    2. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    4. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
    5. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 619-627.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Insurance; Accident probabilities; self-selection;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General

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