On the role of patience in an insurance market with asymmetric information

  • We analyse a 2-period competitive insurance market which is characterized by the simultaneous presence of standard moral hazard and adverse selection with regard to consumer time preferences. It is shown that there exists an equilibrium in which patient consumers use high effort and buy a profit-making insurance contract with high coverage, whereas impatient consumers use low effort and buy a contract with low coverage or even remain uninsured. This finding may help to explain why positive profits and the opposite of adverse selection with regard to risk types can sometimes be observed empirically. JEL Classification: D82, G22

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Author:Michael Sonnenholzner, Achim Wambach
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2007,04
Series (Serial Number):CFS working paper series (2007, 04)
Document Type:Working Paper
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2007/02/23
Tag:Adverse Selection; Insurance; Moral Hazard; Patience
GND Keyword:Versicherungsmarkt; Gleichgewicht; Verbraucher; Geduld
Issue:This Version July 12, 2006
Page Number:32
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht