Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Multidimensional screening in a monopolistic insurance market.
() and Fred Schroyen
Abstract: In this paper, we consider a population of ndividuals who
differ in two dimensions: their risk type (expected loss) and their risk
aversion. We solve for the profit maximizing menu of contracts that a
monopolistic insurer puts out on the market. First, we …nd that it is never
optimal to fully separate all the types. Second, if heterogeneity in risk
aversion is sufficiently high, then some high-risk individuals (the
risk-tolerant ones) will obtain lower coverage than some low-risk
individuals (the risk-averse ones). Third, we show that when the average
man and woman differ only in risk aversion, gender discrimination may lead
to a Pareto improvement.
Keywords: insurance markets; asymmetric information; screening; gender discrimination; positive correlation test.; (follow links to similar papers)
JEL-Codes: D82; G22; (follow links to similar papers)
44 pages, November 2, 2011
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