Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle

@inproceedings{Picard2009ParticipatingIC,
  title={Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle},
  author={Pierre Picard},
  year={2009}
}
We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection when insurers can o¤er either nonparticipating or participating policies, i.e. insurance contracts which may involve policy dividends or supplementary calls for premium. The equilibrium allocation coincides with the Miyazaki-Spence-Wilson equilibrium allocation, which may involve cross-subsidization between contracts within subgroups of individuals. The paper establishes that… CONTINUE READING
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