Insurance, Consumer Search, and Equilibrium Price Distributions
Keywords
service market, frictions, insurance
Abstract
We examine a service market with two frictions: search is required to obtain price quotes, and insurance coverage for the service reduces household search effort. While fewer draws from a price distribution will directly raise a household's average price, the indirect effect of reduced search on price competition has a much greater impact, accounting for at least 89 percent of increased average expenditures. In this environment, a monopolist insurer will exacerbate the moral hazard by offering full insurance. A competitive insurance market typically results in partial insurance and significant price dispersion, yet a second-best contract would offer even less insurance coverage.
Original Publication Citation
“Insurance, Consumer Search, and Equilibrium Price Distributions,” by S. Nuray Akin and Brennan Platt. Journal of Risk and Insurance, 81:397-429, June 2014.
BYU ScholarsArchive Citation
Akin, S. Nuray and Platt, Brennan C., "Insurance, Consumer Search, and Equilibrium Price Distributions" (2014). Faculty Publications. 5786.
https://scholarsarchive.byu.edu/facpub/5786
Document Type
Peer-Reviewed Article
Publication Date
2014-6
Permanent URL
http://hdl.lib.byu.edu/1877/8516
Publisher
Journal of Risk and Insurance
Language
English
College
Family, Home, and Social Sciences
Department
Economics
Copyright Status
COPYRIGHT 2014 John Wiley & Sons, Inc.
Copyright Use Information
https://lib.byu.edu/about/copyright/