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Adverse Selection in an Insurance Market with Government-Guaranteed Subsistence Levels
Bum J. Kim and Harris Schlesinger
The Journal of Risk and Insurance
Vol. 72, No. 1 (Mar., 2005), pp. 61-75
Published by: American Risk and Insurance Association
Stable URL: http://www.jstor.org/stable/3519891
Page Count: 15
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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.
The Journal of Risk and Insurance © 2005 American Risk and Insurance Association