Advantageous Selection in Insurance Markets

  title={Advantageous Selection in Insurance Markets},
  author={David de Meza and David C. Webb},
  journal={The RAND Journal of Economics},
This paper reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision. Risk-tolerant individuals take few precautions and are disinclined to insure, but are drawn into a pooling equilibrium by the low premiums created by the presence of safer, more risk-averse types. Taxing insurance drives out the reckless clients, allowing a strict Pareto gain. This result depends on administrative costs in processing claims and issuing policies… Expand

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