Risk Classification in Insurance Markets with Risk and Preference Heterogeneity

• 成果类型: Article
• 署名作者: Luz, Vitor Farinha; Gottardi, Piero; Moreira, Humberto
• 署名单位: University of British Columbia; University of Essex; Universita Ca Foscari Venezia
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdad017
• 发表日期: 2023
• 页码: 3022-3082
• 关键词: Adverse selection; categorical discrimination; moral hazard; INFORMATION; equilibrium; EFFICIENCY

摘要

This paper studies a competitive model of insurance markets in which consumers are privately informed about their risk and risk preferences. We provide a characterization of the equilibria, which depend non-trivially on consumers' type distribution, a desirable feature for policy analysis. The use of consumer characteristics for risk classification is modeled as the disclosure of a public informative signal. A novel property of signals, monotonicity, is shown to be necessary and sufficient for their release to be welfare improving for almost all consumer types. We also study the effect of changes to the risk distribution in the population as the result of demographic changes or policy interventions. We show that an increase in the risk distribution, according to the monotone likelihood ratio ordering of distribution, leads to lower utility for almost all consumer types. In contrast, the effect is ambiguous when considering the first-order stochastic dominance ordering.