Facilitating Consumer Learning in Insurance Markets: What Are the Welfare Effects?

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We model a monopoly insurance market where consumers can learn their accident risks at a cost c. We then ask: What are the welfare effects of a policy that reduces c? If c is sufficiently small (c < c*), the optimal contract is such that the consumer gathers information. For c c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Finally, a reduction in c that is “successful,” meaning that the consumer gathers information after the reduction but not before it, can hurt both parties.
Original languageEnglish
JournalThe Scandinavian Journal of Economics
Issue number2
Pages (from-to)465-502
Publication statusPublished - 2018

ID: 172762817