Information design in competitive insurance markets (Q1995307)

The paper considers competitive insurance markets with adverse selection, focusing on the optimal information structure. Within this framework, being aware of ratings assigned by a specific regulator, insurers are able to offer contracts with different characteristics: these adapt to the characteristics of the individuals for whom such contracts are intended. The study demonstrates the existence of a unique optimal system under which all individuals trade and the ratings match low-cost types with high-cost types negative assortatively. The optimal system is schematized by an algorithm; the connections of the proposed model with important regulatory aspects are also considered.