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Optimal insurance with adverse selection and comonotonic background risk

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08.06.250.pdf (97.06Kb)
Date
2007
Publisher city
Toulouse
Collection title
Document de travail LERNA
Collection Id
8
Dewey
Economie financière
Sujet
Adverse Selection; Background risk; Optimal Contract
JEL code
D.D8.D82
URI
https://basepub.dauphine.fr/handle/123456789/20300
Collections
  • LEDa : Publications
Metadata
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Author
Alary, David
29765 Laboratoire d'Economie des ressources Naturelles [LERNA]
Bien, Franck
559342 Laboratoire d'Economie de Dauphine [LEDa]
Type
Document de travail / Working paper
Item number of pages
7
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.

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