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Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-51919

Netzer, Nick; Scheuer, Florian (2009). Competitive Screening in Insurance Markets with Endogenous Wealth Heterogeneity. Working paper series / Socioeconomic Institute No. 907, University of Zurich.

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Abstract

We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
DDC:330 Economics
JEL Classification:D82, G22, J22
Language:English
Date:June 2009
Deposited On:29 Nov 2011 21:09
Last Modified:09 Jul 2012 07:01
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html

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