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Imperfect Tests and Natural Insurance Monopolies

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  • Winand Emons

Abstract

In a housing insurance market buildings have different damage probabilities. High‐risk houses need investment, low‐risk houses don’t. Insurers use imperfect tests to assess risks. The market is a natural monopoly: with more than one active insurer, high‐risk house owners continue to apply to insurers until they are eventually assigned to the low‐risk class. The natural monopoly need not be sustainable. In equilibrium the incumbent accommodates entry even when the natural monopoly is sustainable. We explain recent observations from Germany and Switzerland where damage rates and prices went up drastically after the transition from state monopolies to competitive environments.
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Suggested Citation

  • Winand Emons, 1997. "Imperfect Tests and Natural Insurance Monopolies," Diskussionsschriften dp9704, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp9704
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    Cited by:

    1. Freixas Xavier & Hurkens Sjaak & Morrison Alan D & Vulkan Nir, 2007. "Interbank Competition with Costly Screening," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, May.
    2. Arthur Charpentier & Benoît Le Maux, 2010. "Natural Catastrophe Insurance: When Should the Government Intervene?," Working Papers hal-00536925, HAL.
    3. Charpentier, Arthur & Le Maux, Benoît, 2014. "Natural catastrophe insurance: How should the government intervene?," Journal of Public Economics, Elsevier, vol. 115(C), pages 1-17.
    4. W. David Bradford & Andrew N. Kleit, 2011. "Can Credence Advertising Effects Be Isolated? Can They Be Negative?: Evidence from Pharmaceuticals," Southern Economic Journal, John Wiley & Sons, vol. 78(1), pages 167-190, July.
    5. repec:hal:journl:hal-00536925 is not listed on IDEAS

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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