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Title of Journal: Econ Theory

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Abbravation: Economic Theory

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Springer-Verlag

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10.1016/j.bbagen.2006.11.009

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1432-0479

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Competitive screening in insurance markets with en

Authors: Nick Netzer Florian Scheuer
Publish Date: 2009/06/27
Volume: 44, Issue: 2, Pages: 187-211
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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 highrisk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks a phenomenon that we refer to as irregularcrossing 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 studiesWe are grateful to Daron Acemoglu Abhijit Banerjee Felix Bierbrauer Friedrich Breyer Wolfgang Buchholz Peter Diamond Glenn Ellison Oliver Fabel Amy Finkelstein Jon Gruber Mathias Kifmann Jim Poterba Casey Rothschild Harris Schlesinger Arthur Snow two anonymous referees and seminar participants at the Universities of Augsburg Konstanz MIT Zurich and the 2007 Annual Meetings of the Risk Theory Society the American Risk and Insurance Association and the European Economic Association for valuable comments on earlier versions of this paper The usual disclaimer applies

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