Document Type
Discussion Paper
Publication Date
8-1-2001
CFDP Number
1315
CFDP Pages
38
Abstract
We build a model of competitive pooling and show how insurance contracts emerge in equilibrium, designed by the invisible hand of perfect competition. When pools are exclusive, we obtain a unique separating equilibrium. When pools are not exclusive but seniority is recognized, we obtain a different unique equilibrium: the pivotal primary-secondary equilibrium. Here reliable and unreliable households take out a common primary insurance up to its maximum limit, and then unreliable households take out further secondary insurance.
Recommended Citation
Dubey, Pradeep and Geanakoplos, John, "Insurance Contracts Designed by Competitive Pooling" (2001). Cowles Foundation Discussion Papers. 1575.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1575