Facilitating Consumer Learning in Insurance Markets: What Are the Welfare Effects?
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Facilitating Consumer Learning in Insurance Markets : What Are the Welfare Effects? / Lagerlöf, Johan N. M.; Schottmüller, Christoph.
In: The Scandinavian Journal of Economics, Vol. 120, No. 2, 2018, p. 465-502.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Facilitating Consumer Learning in Insurance Markets
T2 - What Are the Welfare Effects?
AU - Lagerlöf, Johan N. M.
AU - Schottmüller, Christoph
PY - 2018
Y1 - 2018
N2 - We model a monopoly insurance market where consumers can learn their accident risks at a cost c. We then ask: What are the welfare effects of a policy that reduces c? If c is sufficiently small (c < c*), the optimal contract is such that the consumer gathers information. For c < c*, both insurer and consumer benefit from a policy that reduces c further. For c > c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Finally, a reduction in c that is “successful,” meaning that the consumer gathers information after the reduction but not before it, can hurt both parties.
AB - We model a monopoly insurance market where consumers can learn their accident risks at a cost c. We then ask: What are the welfare effects of a policy that reduces c? If c is sufficiently small (c < c*), the optimal contract is such that the consumer gathers information. For c < c*, both insurer and consumer benefit from a policy that reduces c further. For c > c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Finally, a reduction in c that is “successful,” meaning that the consumer gathers information after the reduction but not before it, can hurt both parties.
KW - Faculty of Social Sciences
KW - D82
KW - I13
U2 - 10.1111/sjoe.12231
DO - 10.1111/sjoe.12231
M3 - Journal article
VL - 120
SP - 465
EP - 502
JO - Scandinavian Journal of Economics
JF - Scandinavian Journal of Economics
SN - 0347-0520
IS - 2
ER -
ID: 172762817