The Welfare Effects of Discrimination in Insurance

Arbeitspapier

We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 06-012/1

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Regulation and Business Law: Other
• Subject: insurance ; adverse selection ; risk selection ; discrimination

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): van der Noll, Rob
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/86585
• Last update: 10.03.2025, 11:42 AM CET