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The Probationary Period as a Screening Device: The Monopolistic Insurer

  • Economics


Stiglitz [1977], considering asymmetry of information in a monopolistic insurance market and the monetary deductible as a screening device, shows that an equilibrium is always of a separating type. High risks buy complete insurance whilst low risks buy partial insurance. In this paper, we show that a pooling equilibrium may exist if a probationary period, rather than the partial coverage in monetary terms, is used as a screening device. Copyright The Geneva Association 2005

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