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Minimum coverage regulation in insurance markets
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McFadden, Daniel, Noton, Carlos and Olivella, Pau (2012) Minimum coverage regulation in insurance markets. Working Paper. Coventry: Department of Economics, University of Warwick. (Unpublished)
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Abstract
We study a usual regulation in the health insurance (HI) industry: imposing a minimum coverage. We do this in a market where agents have private information on their true risk type (adverse selection). We solve both a short run model and a model with �xed entry costs. In the short run, and if the regulation is not too stringent, the equilibrium exists and is separating. A single �rm monopolizes the high risks while the rest attract the low risks, all at positive (variable) pro�ts. In the entry game, no equilibrium exists if regulation is relatively weak. If the legislation is su¢ ciently stringent we can support a separating equilibrium
with the same structure as in the short run where total pro�ts are zero at the full insurance contract. We can predict how many insurers serve the low risks. There is excessive entry and the low risks �nance the excessive entry costs. The long run stability of this market is however greatly compromised in the presence of entry costs.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Publisher: | Department of Economics, University of Warwick | ||||
Place of Publication: | Coventry | ||||
Official Date: | February 2012 | ||||
Dates: |
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Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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