Misinformation and Equilibrium in Insurance Markets
This chapter is concerned with the role of misinformation by firms and consumers with respect to the selling and buying of insurance. Our interest is in the relationship between the accuracy of consumer beliefs and the relative performance of the market system and social programmes. Such an investigation requires us to determine under what conditions a stable market equilibrium exists and, if it does, what type of insurance policies are offered to consumers. We can then contrast these market outcomes with premium regulation or some form of required insurance coverage.
KeywordsNash Equilibrium Expected Utility Insurance Market Insurance Policy Positive Profit
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