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  3. American Economic Review
  4. October 2023
  5. Regulation Design in Insurance Markets

Regulation Design in Insurance Markets

  • Dhruva Bhaskar
  • Andrew McClellan
  • Evan Sadler
American Economic Review
vol. 113, no. 10, October 2023
(pp. 2546-80)
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Abstract

Regulators often impose rules that constrain the behavior of market participants. We study the design of regulatory policy in an insurance market as a delegation problem. A regulator restricts the menus of contracts an informed firm is permitted to offer, the firm offers a permitted menu to each consumer, and consumers choose contracts from offered menus. If consumer types and firm signals are ordered in a way that reflects coverage need, the regulator can leverage the firm's information by forcing the firm to offer specified additional options on each menu. Several extensions illustrate the practical application of our results.

Citation

Bhaskar, Dhruva, Andrew McClellan, and Evan Sadler. 2023. "Regulation Design in Insurance Markets." American Economic Review, 113 (10): 2546-80. DOI: 10.1257/aer.20210710

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • D82 Asymmetric and Private Information; Mechanism Design
  • D86 Economics of Contract: Theory
  • G22 Insurance; Insurance Companies; Actuarial Studies
  • G28 Financial Institutions and Services: Government Policy and Regulation
  • L51 Economics of Regulation