A theory of the demand for underwriting
We examine the demand for underwriting and its effect on equilibrium in an insurance market in which insureds know their risk type, but insurers do not. Our analysis indicates that a set of policies including one that requires buyers to take an underwriting test can constitute a full coverage Nash e...
Saved in:
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
2013
|
| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/99238 http://hdl.handle.net/10220/17189 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | We examine the demand for underwriting and its effect on equilibrium in an insurance market in which insureds know their risk type, but insurers do not. Our analysis indicates that a set of policies including one that requires buyers to take an underwriting test can constitute a full coverage Nash equilibrium when perfect classification is possible. We also find that underwriting equilibria, in which low risks obtain greater coverage than they would without underwriting, widely exist in a Wilsonian market with nonmyopic insurers. Our findings provide a potential explanation for why empirical evidence on adverse selection is mixed. |
|---|