A Theory of the Demand for Underwriting

15 Pages Posted: 24 May 2012

See all articles by Mark J. Browne

Mark J. Browne

St. John's University - Peter J. Tobin College of Business

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012

Abstract

We examine the demand for underwriting and its effect on equilibrium in an insurance market in which insureds know their risk type, but insurers do not. Our analysis indicates that a set of policies including one that requires buyers to take an underwriting test can constitute a full coverage Nash equilibrium when perfect classification is possible. We also find that underwriting equilibria, in which low risks obtain greater coverage than they would without underwriting, widely exist in a Wilsonian market with nonmyopic insurers. Our findings provide a potential explanation for why empirical evidence on adverse selection is mixed.

Suggested Citation

Browne, Mark J. and Kamiya, Shinichi, A Theory of the Demand for Underwriting (June 2012). Journal of Risk and Insurance, Vol. 79, Issue 2, pp. 335-349, 2012, Available at SSRN: https://ssrn.com/abstract=2065689 or http://dx.doi.org/10.1111/j.1539-6975.2011.01436.x

Mark J. Browne (Contact Author)

St. John's University - Peter J. Tobin College of Business ( email )

New York, NY
United States

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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