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Author Schumacher, Heiner ♦ Kesternich, Iris
Source EconStor
Content type Text
Publisher Verein für Socialpolitik
File Format PDF
Language English
Subject Domain (in DDC) Social sciences ♦ Economics
Subject Keyword Insurance Markets, Moral Hazard, Hyperbolic Discounting, Sophistication ♦ Asymmetric and Private Information; Mechanism Design ♦ Intertemporal Household Choice; Life Cycle Models and Saving ♦ Insurance; Insurance Companies; Actuarial Studies
Abstract We develop an insurance market model where consumers (i) exhibit present-biased preferences, and (ii) suffer from physical pain in case of (health-) damage. They can exert preventive effort to reduce the probability of damage. Sophisticated consumers correctly anticipate their effort and purchase full insurance. Naive consumers overestimate their future effort, purchase no insurance and end up with less effort than sophisticated ones. We allow consumers to differ in their wealth and risk preferences. Our model can explain why in some insurance markets there is a negative correlation between risk and insurance and a positive correlation between insurance and wealth.
Part of series Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Risk xC8-V1
Learning Resource Type Article
Publisher Date 2010-01-01
Publisher Place Frankfurt a. M.
Rights Holder