Working Paper: CEPR ID: DP16531
Authors: Andrea Attar; Thomas Mariotti; Francois Salanié
Abstract: This paper studies an insurance market on which privately informed consumers can simultaneously trade with several firms operating under a regulation that prohibits cross-subsidies between contracts. The regulated game supports a single equilibrium allocation in which each layer of coverage is fairly priced given the consumer types who purchase it. This competitive allocation cannot be Pareto-improved by a social planner who observes neither consumers' types nor their trades with firms. Public intervention under multiple contracting and adverse selection should thus arguably target firms' pricing strategies, leaving consumers free to choose their preferred amount of coverage.
Keywords: insurance markets; regulation; multiple contracting; adverse selection
JEL Codes: D43; D82; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulating firms' pricing strategies (L11) | Unique equilibrium allocation (D51) |
| Prohibition of cross-subsidies (H23) | Unique equilibrium allocation (D51) |
| Regulating firms' pricing strategies (L11) | Fairly priced coverage layers (G52) |
| Regulating firms' pricing strategies (L11) | Prevent adverse selection (D82) |
| Unique equilibrium allocation (D51) | Pareto-efficient outcome (D61) |
| Regulating firms' pricing strategies (L11) | Firm behavior (D21) |
| Firm behavior (D21) | Market equilibrium (D53) |