Monopoly Insurance and Endogenous Information

Johan N. M. Lagerlöf, Christoph Schottmüller

    1 Citation (Scopus)

    Abstract

    We study a monopoly insurance model with endogenous information acquisi-
    tion. Through a continuous effort choice, consumers can determine the precision of a privately observed signal that is informative about their accident risk. The equilibrium effort is, depending on parameter values, either zero (implying symmetric information) or positive (implying privately informed consumers). Regardless of the nature of the equilibrium, all offered contracts, also at the top, involve underinsurance, which discourages information gathering. We identify a missorting effect that explains why the insurer wants to discourage information acquisition. Moreover, lower information gathering costs can hurt both consumer and insurer.
    Original languageEnglish
    JournalInternational Economic Review
    Volume59
    Issue number1
    Pages (from-to)233-255
    ISSN0020-6598
    DOIs
    Publication statusPublished - 29 Jan 2018

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