Hidden Insurance in a Moral-Hazard Economy
Journal
The RAND Journal of Economics
ISSN
0741-6261
ISSN-Digital
1756-2171
Type
journal article
Date Issued
2015-10-26
Author(s)
Abstract
We analyze the general equilibrium of an economy in which a competitive industry produces nonexclusive insurance services. The equilibrium is inefficient because insurance contracts cannot control moral hazard, and welfare can be improved by policies that reduce insurance by increasing its price above marginal cost. We discuss how insurance production costs that exceed expected claim payments interact with moral hazard in determining the equilibrium's inefficiency, and show that these costs can make insurance premia so actuarially unfair as to validate the standard first-order conditions we exploit in our analysis.
Language
English
Keywords
Hidden Insurance
Economy
Moral Hazard Economy
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
Wiley
Publisher place
Hoboken, NJ
Volume
46
Number
4
Start page
777
End page
790
Pages
14
Subject(s)
Eprints ID
235043