Splitting Risks in Insurance Markets In Adverse Selection
Abstract
We characterize the design of insurance schemes when policyhold- ers face several insurable risks in a context of adverse selection. Split- ting risks emerges as a feature of second-best Pareto-optimal alloca- tions. This may take the form of risk-speci
c contracts, or of con- tracts where risks are bundled, but subject to di⁄erential coverage rules such as risk speci
c copayments, combined with a deductible, an out-of-pocket maximum or a cap on coverage.
Domains
Economics and Finance
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