Linear price equilibria in a non-exclusive insurance market☆
Review articleOpen access
2019/03/01 Full-length article DOI: 10.1016/j.jmateco.2018.12.006
Journal: Journal of Mathematical Economics
AbstractWe consider a competitive insurance market in which agents can privately enter into multi-contractual insurance relationships and undertake hidden actions. We study the existence of a linear equilibrium when insurance companies have no restrictions on their pricing rules. For CARA utility functions, we show that a linear equilibrium always exists. For DARA utility functions, we provide sufficient conditions under which a linear equilibrium exists. We show that the linear equilibrium is unique, actuarially unfair, and induces partial insurance coverage. Lastly, we show that the linear equilibrium is always third-best efficient.
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