Signaling theory revisited: a very short insurance case

摘要

In order to reduce informational asymmetry a signaling contract seems to be an efficient solution. Standard theory argues that insurance contracts typically produce separating equilibria. Mostly, this property is based on the assumption of two states of the world only. If however, there is a world with a continuum of states the solution is different. We prove that there is no longer a separating equilibrium. As a result, insurance markets are characterized by pooling equilibria or self-insurance structures.