CFDP 2167

Non-Exclusive Insurance with Free Entry: A Pedagogical Note

Author(s): 

Publication Date: February 2019

Pages: 11

Abstract: 

We consider the Rothschild-Stiglitz model of insurance but without the exclusivity constraint. It turns out that there always exists a unique equilibrium, in which the reliable and unreliable consumers take out a primary insurance up to its quantity limit, and the unreliable take out further secondary insurance at a higher premium. We provide a simple proof of this result (extended to multiple types of consumers) with the hope that it may be pedagogically useful.

Keywords: Non-exclusive insurance, Free entry, Adverse selection, Primary-secondary insurance

JEL Classification Codes: D43, D82, D86

JEL Classification Codes: D43D82D86