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Adverse selection and optimum insurance policies

Sheshinski, Eytan (1977): Adverse selection and optimum insurance policies. Published in: Natural Resources, Uncertainty and General Equilibrium Systems: Essays in Memory of Raphael Lusky : pp. 113-122.

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This paper considers how insurance companies choose a price schedule for policies depending on the size of these policies which are determined by households. Under asymmetric information, we analyse the tension between self-selection and the density distribution of household by accident probability. The profit maximizing policy is compared to the socially optimal policy.

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