Article

Regulating Insurance Markets: Multiple Contracting and Adverse Selection

Andrea Attar, Thomas Mariotti, and François Salanié

Abstract

We study insurance markets in which privately informed consumers can purchase coverage from several firms whose pricing strategies are subject to an anti-dumping regulation. The resulting regulated game supports a single allocation in which each layer of coverage is fairly priced given the consumer types who purchase it. This competitive allocation cannot be Pareto-improved by a social planner who can neither observe consumer types nor monitor their trades with firms. Accordingly, we argue that public intervention under multiple contracting and adverse selection should penalize firms that cross-subsidize between contracts, while leaving consumers free to choose their preferred amount of coverage.

Keywords

Insurance Markets; Regulation; Multiple Contracting; Adverse Selection.;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory

Replaces

Andrea Attar, Thomas Mariotti, and François Salanié, Regulating Insurance Markets: Multiple Contracting and Adverse Selection, TSE Working Paper, n. 19-1033, August 2019, revised September 2021.

Reference

Andrea Attar, Thomas Mariotti, and François Salanié, Regulating Insurance Markets: Multiple Contracting and Adverse Selection, International Economic Review, January 2022, forthcoming.

Published in

International Economic Review, January 2022, forthcoming