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Multidimensional screening in a monopolistic insurance market

Olivella, Pau; Schroyen, Fred
Working paper
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URI
http://hdl.handle.net/11250/163360
Date
2011-11
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  • Discussion papers (SAM) [579]
Abstract
In this paper, we consider a population of individuals who differ

in two dimensions: their risk type (expected loss) and their risk aversion.

We solve for the profit maximizing menu of contracts that a monopolistic

insurer puts out on the market. First, we find that it is never optimal

to fully separate all the types. Second, if heterogeneity in risk aversion is

sufficiently high, then some high-risk individuals (the risk-tolerant ones) will

obtain lower coverage than some low-risk individuals (the risk-averse ones).

Third, we show that when the average man and woman differ only in risk

aversion, gender discrimination may lead to a Pareto improvement.
Publisher
Norwegian School of Economics, Department of Economics
Series
Discussion Papers;19/2011

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