Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2006-01-20
Number: 06-012/1
Author-Name: Rob van der Noll
Author-Email: vandernoll@few.eur.nl
Author-Workplace-Name: CPB Netherlands Bureau for Economic Policy, and Erasmus Universiteit Rotterdam
Title: The Welfare Effects of Discrimination in Insurance
Abstract: We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.
Classification-JEL: D82; K29
Keywords: insurance; adverse selection; risk selection; discrimination
File-Url: https://papers.tinbergen.nl/06012.pdf
File-Format: application/pdf
File-Size: 299752 bytes
Handle: RePEc:tin:wpaper:20060012