Andrea Attar, Thomas Mariotti, and François Salanié, “Multiple Contracting in Insurance Markets: Cross-Subsidies and Quantity Discounts”, IDEI Working Paper, n. 839, October 7, 2014.
We study a nonexclusive insurance market with adverse selection in which insurers compete through simple contract offers. Multiple contracting endogenously emerges in equilibrium. Different layers of coverage are priced fairly according to the types of insurees who purchase them, giving rise to cross-subsidies between types. Riskier insurees demand greater total coverage at an increasing unit price, but the contracts offered by insurers feature quantity discounts in equilibrium. Our policy implications emphasize the need to regulate the supply side of nonexclusive insurance markets, leaving insurees free to choose their optimal level of coverage.
Insurance Markets; Multiple Contracting; Adverse Selection;
- D43: Oligopoly and Other Forms of Market Imperfection
- D82: Asymmetric and Private Information • Mechanism Design
- D86: Economics of Contract: Theory
Paul Woolley Research Initiative
Contracts on Organisational Structure