Multidimensional screening in a monopolistic insurance market

Pau Olivella, Fred Schroyen

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

We consider a population of individuals who differ in two dimensions, their risk type (expected loss) and their risk aversion, and solve for the profit-maximising menu of contracts that a monopolistic insurer puts out on the market. Our findings are threefold. First, it is never optimal to fully separate all the types. Second, if heterogeneity in risk aversion is sufficiently high, then some high-risk individuals (the risk-tolerant ones) will obtain lower coverage than some low-risk individuals (the risk-averse ones). Third, because women tend to be more risk averse than men (in that the risk aversion distribution for women first-order stochastically dominates that for men), gender discrimination may lead to a Pareto improvement. © 2014 The International Association for the Study of Insurance Economics.
Original languageEnglish
Pages (from-to)90-130
JournalGENEVA Risk and Insurance Review
Volume39
DOIs
Publication statusPublished - 1 Jan 2014

Keywords

  • asymmetric information
  • gender discrimination
  • insurance markets
  • positive correlation test
  • screening

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