Optimal risk-sharing under adverse selection and imperfect risk perception

Abstract : The present paper thoroughly explores second-best efficient allocations in an insurance economy with adverse selection. We start with a natural extension of the classical model, assuming less than perfect risk perception. We characterize the constraints on efficient redistribution, and we summarize the incidence of incentives on the economy with the notions of weak and strong adverse selection. Finally, we show in what sense improving risk perception enhances welfare.
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Submitted on : Tuesday, November 20, 2012 - 8:41:15 AM
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Arnold Chassagnon, Bertrand Villeneuve. Optimal risk-sharing under adverse selection and imperfect risk perception. Canadian Journal of Economics, 2005, 38 (3), pp.955-978. ⟨10.1111/j.0008-4085.2005.00311.x⟩. ⟨halshs-00754069⟩

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