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| Author: | Ligon, J.A. Thistle, P.D. |
| Title: | Moral hazard and background risk in competitive insurance markets |
| Journal: | Economica
2008 : NOV, VOL. 75:300, p. 700-709 |
| Index terms: | insurance markets competition moral hazard risk |
| Language: | eng |
| Abstract: | This study examines the effect of background risk (henceforth as: b-g-r.) on competitive insurance markets with moral hazard. In case policy-holders have non-negative prudence, then b-g-r. does not decrease effort and, when effort increases, expands the set of feasible policies. However, the effect of b-g-r. on equilibrium is indeterminate. Herein, analyzed is the choice btw. stock and mutual insurance (here as: m-s). M-s. is equivalent to a fair policy plus b-g-r. This study's results imply that competitive insurance markets with moral hazard ought to be dominated by stock insurers. |
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