NDLI: Monopoly, Heterogeneous Beliefs and Imperfect Information: The Insurance Market

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Monopoly, Heterogeneous Beliefs and Imperfect Information: The Insurance Market

Content Provider	Scilit
Author	Ogaku, Michiko
Copyright Year	2019
Abstract	This paper questions how heterogeneity of beliefs about the probability of loss affects equilibrium insurance contracts, firm behavior, and welfare focusing especially on the effect of optimism when a monotonicity property, which is a major assumption of prior work, is violated. This paper shows that optimistic individuals could result in insurance driving out individuals who exert effort, if the fraction of such optimistic individuals is significantly large. In addition, this paper shows that optimism could have negative effects on profits of the firm even though both parties realize the asymmetry in beliefs. These results are not only consistent with empirical evidence from several insurance markets on correlation of risk and coverage, but also simply align themselves with empirical evidence on the tendencies of people to be unrealistically optimistic.
Related Links	http://www.degruyter.com/downloadpdf/j/apjri.ahead-of-print/apjri-2018-0030/apjri-2018-0030.xml
ISSN	17932157
e-ISSN	21533792
DOI	10.1515/apjri-2018-0030
Journal	Asia-Pacific Journal of Risk and Insurance
Issue Number	1
Volume Number	14
Language	English
Publisher	Walter de Gruyter GmbH
Publisher Date	2019-03-27
Access Restriction	Open
Subject Keyword	Asia-pacific Journal of Risk and Insurance Economics Heterogeneous Beliefs Moral Hazard Adverse Selection Journal: Asia-Pacific Journal of Risk and Insurance, Vol- 14, Issue- 1
Content Type	Text
Resource Type	Article

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