Equilibrium in insurance markets with adverse selection when insurers pay policy dividends

Pierre Picard 1, *
* Corresponding author
Abstract : We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection and an arbitrary number of risk types, when insurance contracts include policy dividend rules. The Miyazaki-WilsonSpence state-contingent allocation is an equilibrium allocation, and it is the only one when out-of-equilibrium beliefs satisfy a robustness criterion. It is shown that stock insurers and mutuals may coexist, with stock insurers o⁄ering insurance coverage at actuarial price and mutuals cross-subsidizing risks.
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Submitted on : Monday, September 26, 2016 - 3:56:55 PM
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Pierre Picard. Equilibrium in insurance markets with adverse selection when insurers pay policy dividends. 2016. ⟨hal-01206073v2⟩

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