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Adverse Selection and Insurance Contracting: A Rank-Dependent Utility Analysis
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Matthew Joseph Ryan
Published/Copyright:
August 6, 2003
Stiglitz (1977) established three well-known features of monopoly insurance markets subject to adverse selection: (i) at least one market segment is served, despite the informational asymmetry; (ii) there is always some screening of risk classes; and (iii) efficiency is sacrificed to achieve screening. We modify Stiglitz’s model, replacing his expected utility assumption on consumer behavior with a version of Quiggin’s (1982) rank-dependent utility model that has received strong experimental support. We show that none of the conclusions (i)—(iii) is robust to this revision. In particular, asymmetric information need not lead to any loss in efficiency.
Published Online: 2003-8-6
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Topics Article
- Non-robustness of some economic models
- Incentives for Boundedly Rational Agents
- On Non-responsiveness in Adverse Selection Models with Common Value
- Contributions Article
- Competitive Equilibria With Incomplete Markets and Endogenous Bankruptcy
- A One-Period Version of Rubinstein's Bargaining Game
- Upgrading, Degrading, and Intertemporal Price Discrimination
- Adverse Selection and Insurance Contracting: A Rank-Dependent Utility Analysis
- Incomplete Contracts with Cross-Investments
- Communication and Voting with Double-Sided Information
- Signal Jamming in Games with Multiple Senders
- Homothetic or Cobb-Douglas Behavior Through Aggregation
- Advances Article
- The Generalized Linear Production Model: Solvability, Nonsubstitution and Productivity Measurement
- Contagion and State Dependent Mutations
- Rationalization and Incomplete Information
- Contractual Externalities and Common Agency Equilibria
- Market Research and Market Design
