Optimal insurance with adverse selection and comonotonic background risk
Alary, David; Bien, Franck (2007), Optimal insurance with adverse selection and comonotonic background risk. https://basepub.dauphine.fr/handle/123456789/20300
TypeDocument de travail / Working paper
Series titleDocument de travail LERNA
MetadataShow full item record
Abstract (EN)In this note, we consider an adverse selection problem involving an insurance market à la Rothschild-Stiglitz. We assume that part of the loss is uninsurable as in the case with health care or environmental risk. We characterize sufficient conditions such that adverse selection by itself does not distort competitive insurance contracts. A sufficiently large uninsurable loss provides an incentive to high-risk policy holders not to mimic low-risk policy holders without distorting the optimal coverage.
Subjects / KeywordsAdverse Selection; Background risk; Optimal Contract
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