Type of Publication: Article in Journal

Time Deductibles as Screening Devices: Competitive Markets

Author(s):

Spreeuw, Jaap; Karlsson, Martin

Title of Journal:

The Journal of Risk and Insurance

Volume (Publication Date):

76 (2009)

Number of Issue:

2

pages:

261-278

Digital Object Identifier (DOI):

doi:10.1111/j.1539-6975.2009.01298.x

Citation:

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Abstract

Seminal papers on asymmetric information in competitive insurance markets, analyzing the monetary deductible as a screening device, show that any existing equilibrium is of a separating type. High risks buy complete insurance, whereas low risks buy partial insurance—and this result holds for the Nash behavior as well as for the Wilson foresight. In this article, we analyze the strength of screening based on limitations to the period of coverage of the contract. We show that in this case (1) the Nash equilibrium may entail low risks not purchasing any insurance at all, and (2) under the Wilson foresight, a pooling equilibrium may exist.