The Probationary Period as a Screening Device: The Monopolistic Insurer |
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Authors: | Jaap Spreeuw |
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Institution: | (1) Cass Business School, Faculty of Actuarial Science and Statistics, 106 Bunhill Row, London, EC1Y 8TZ, UK |
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Abstract: | Stiglitz 1977], considering asymmetry of information in a monopolistic insurance market and the monetary deductible as a screening device, shows that an equilibrium is always of a separating type. High risks buy complete insurance whilst low risks buy partial insurance. In this paper, we show that a pooling equilibrium may exist if a probationary period, rather than the partial coverage in monetary terms, is used as a screening device.JEL Classification No.: D42, D82 |
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Keywords: | probationary periods adverse selection monopoly separating equilibrium pooling equilibrium |
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