publication . Article . Preprint . 2003

Imperfect Tests and Natural Insurance Monopolies

Winand Emons;
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  • Published: 27 Mar 2003 Journal: The Journal of Industrial Economics, volume 49, pages 247-268 (issn: 0022-1821, Copyright policy)
  • Publisher: Wiley
Abstract
This paper considers a housing insurance market in which buildings have different damage probabilities. Insurers use imperfect tests to find out about buildings’ damage types. The insurance market is a natural monopoly. If more than one insurer is active, high risk house owners continue to apply to insurers until they are eventually assigned to a low-risk class. First we show that the natural insurance monopoly need not be sustainable. Then we show that in the equilibrium industry structure the incumbent may accommodate entry even when the natural monopoly is sustainable. The theoretical findings are thus able to explain recent observations from Germany and Swit...
Subjects
free text keywords: Imperfect Tests; Inefficient Entry; Insurance; Natural Monopoly; Sustainability, Economics and Econometrics, Accounting, General Business, Management and Accounting, Insurance market, Auto insurance risk selection, Microeconomics, Imperfect, Publishing, business.industry, business, Economics, Sustainability, Natural monopoly, jel:D42, jel:D43, jel:L12, jel:L13
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publication . Article . Preprint . 2003

Imperfect Tests and Natural Insurance Monopolies

Winand Emons;