SPLITTING RISKS IN INSURANCE MARKETS WITH ADVERSE SELECTION

摘要

We characterize the design of insurance schemes when policyholders face several insurable risks in a context of adverse selection. Splitting risks emerges as a feature of second-best Pareto optimality. This may take the form of risk-specific contracts, or of contracts where risks are bundled but subject to differential coverage rules, such as risk-specific copayments combined with a deductible or a cap on coverage.