Faculty of Economics and Business Administration Publications Database

Competitive Insurance Markets under Adverse Selection and Capacity Constraints

Wambach, Achim
Volume: 45
Number: 10
Pages: 1981 - 1992
Month: December
ISSN-Print: 0014-2921
Link External Source: Online Version
Year: 2001
Keywords: Insurancemarkets; Asymmetric information; Competitive equilibrium; Capacity constraints
Abstract: Ever since the seminal work by Rothschild and Stiglitz (Q. J. Econom. 90 (1976) 629) on competitiveinsurancemarketsunderadverseselection, the problem of non-existence of equilibrium in pure strategies has received much attention in the literature. We extend the original analysis by considering firms which face capacityconstraints, which might be due to limited capital. We show that under mild assumptions an equilibrium exists, where every consumer obtains his appropriate Rothschild–Stiglitz contract.