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Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition

Joseph E. Stiglitz, Jungyoll Yun, Andrew Kosenko

NBER Working Paper No. 27041
Issued in April 2020
NBER Program(s):Technical Working Papers

We study insurance markets with nonexclusive contracts, introducing bilateral endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under remarkably mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome consists of a pooling contract which maximizes the well-being of the low risk type (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk type to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Consumer disclosure and asymmetric equilibrium information flows are critical in supporting the equilibrium.

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Document Object Identifier (DOI): 10.3386/w27041

 
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