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In this relatively short survey, we present the core elements of the microeconomic analysis of insurance markets at a level suitable for senior undergraduate and graduate economics students. The aim of this analysis is to understand how insurance markets work, what their fundamental economic functions are, and how efficiently they may be expected to carry(More)
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von Siemens for their comments and suggestions. Abstract Inequity aversion is a special form of other regarding preferences and captures many features of reciprocal behavior, an apparently robust pattern in human nature. Using this concept we analyze the Moral Hazard problem and derive several results which differ from conventional contract theory. Our(More)
November1999 Abstract: Rothschild and Stiglitz (1976) demonstrated that adverse selection may entail nonexis-tence of equilibrium in competitive insurance markets. We approach this problem in a dynamic model with boundedly rational insurance rms. Firms' behavior is based on imitation of proot making contracts, withdrawal of loss making contracts, and(More)
During the recent sales of UMTS licenses in Europe some countries used auctions while others resorted to so-called Beauty Contests. There seems to be a wide consensus among economists that in these and other contexts like privatization an auction is the better selling mechanism. However, why exactly an auction should be preferred is unclear. Here we present(More)
Ever since the seminal work by Rothschild and Stiglitz (1976) on competitive insurance markets under adverse selection the equilibrium-non-existence problem has been one of the major puzzles in insurance economics. We extend the original analysis by considering firms which face capacity constraints , which might be due to limited capital. We show that under(More)
In this paper, the effects of new methods for risk classification, e.g., genetic tests, on health insurance markets are studied using an insurance model with state contingent utility functions. The analysis focuses on the case of treatment costs higher than the patient's willingness to pay where standard models of asymmetric information are not applicable.(More)