Title

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.

Document Type

Peer-Reviewed Article

Publication Date

2014-6

Publisher

Journal of Risk and Insurance

Language

English

College

Family, Home, and Social Sciences

Department

Economics

University Standing at Time of Publication

Full Professor

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