Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76153
Authors: 
Netzer, Nick
Scheuer, Florian
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Socioeconomic Institute, University of Zurich 0907
Abstract: 
We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.
Subjects: 
Insurance Markets
Adverse Selection
Multidimensional Screening
JEL: 
D82
G22
J22
Document Type: 
Working Paper

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