Journal article
Stackelberg equilibria with multiple policyholders
Insurance, mathematics & economics, Vol.116, pp.189-201
05/01/2024
DOI: 10.1016/j.insmatheco.2024.02.008
Abstract
We examine Pareto-efficient contracts and Stackelberg Equilibria (SE) in a sequential -move insurance market in which a central monopolistic insurer on the supply side contracts with multiple policyholders on the demand side. We obtain a representation of Pareto-efficient contracts when the monopolistic insurer's preferences are represented by a coherent risk measure. We then obtain a representation of SE in this market, and we show that the contracts induced by an SE are Pareto-efficient. However, we note that SE do not induce a welfare gain to the policyholders in this case, echoing the conclusions of recent work in the literature. The social welfare implications of this finding are examined through an application to the flood insurance market of the United States of America, in which we find that the central insurer has a strong incentive to raise premia to the detriment of the policyholders. Accordingly, we argue that monopolistic insurance markets are problematic, and must be appropriately addressed by external regulation.
Details
- Title: Subtitle
- Stackelberg equilibria with multiple policyholders
- Creators
- Mario Ghossoub - University of WaterlooMichael B. Zhu - University of Waterloo
- Resource Type
- Journal article
- Publication Details
- Insurance, mathematics & economics, Vol.116, pp.189-201
- DOI
- 10.1016/j.insmatheco.2024.02.008
- ISSN
- 0167-6687
- eISSN
- 1873-5959
- Publisher
- Elsevier
- Number of pages
- 13
- Grant note
- 2018-03961 / Natural Sciences and Engineering Research Council of Canada (NSERC) Society of Actuaries through the Hickman Scholars Program
- Language
- English
- Date published
- 05/01/2024
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179849902771
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