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Adverse Selection in an Insurance Market With Government‐Guaranteed Subsistence Levels
Author(s) -
Kim Bum J.,
Schlesinger Harris
Publication year - 2005
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.0022-4367.2005.00116.x
Subject(s) - adverse selection , bankruptcy , government (linguistics) , business , actuarial science , group insurance , subsistence agriculture , selection (genetic algorithm) , auto insurance risk selection , economics , key person insurance , general insurance , insurance policy , finance , income protection insurance , linguistics , philosophy , ecology , artificial intelligence , computer science , biology , agriculture
We consider a competitive insurance market with adverse selection. Unlike the standard models, we assume that individuals receive the benefit of some type of potential government assistance that guarantees them a minimum level of wealth. For example, this assistance might be some type of government‐sponsored relief program, or it might simply be some type of limited liability afforded via bankruptcy laws. Government assistance is calculated ex post of any insurance benefits. This alters the individuals' demand for insurance coverage. In turn, this affects the equilibria in various insurance models of markets with adverse selection.