Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86585
Authors: 
van der Noll, Rob
Year of Publication: 
2006
Series/Report no.: 
Tinbergen Institute Discussion Paper 06-012/1
Abstract: 
We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.
Subjects: 
insurance
adverse selection
risk selection
discrimination
JEL: 
D82
K29
Document Type: 
Working Paper

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