Findings from University of British Columbia Broaden Understanding of Economics (Risk Classification In Insurance Markets With Risk and Preference Heterogeneity): Economics

2023 APR 17 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Research findings on Economics are discussed in a new report. According to news reporting originating in Vancouver, Canada, by NewsRx journalists, research stated, “This paper studies a competitive model of insurance markets in which consumers are privately informed about their risk and risk preferences. We provide a characterization of the equilibria, which depend non-trivially on consumers’ type distribution, a desirable feature for policy analysis.”

Financial supporters for this research include Conselho Nacional de Desenvolvimento Cientifico e Tecnologico (CNPQ), Fundacao Carlos Chagas Filho de Amparo a Pesquisa do Estado do Rio De Janeiro (FAPERJ), Coordenacao de Aperfeicoamento de Pessoal de Nivel Superior (CAPES), Social Sciences and Humanities Research Council of Canada (SSHRC).

The news reporters obtained a quote from the research from the University of British Columbia, “The use of consumer characteristics for risk classification is modeled as the disclosure of a public informative signal. A novel property of signals, monotonicity, is shown to be necessary and sufficient for their release to be welfare improving for almost all consumer types. We also study the effect of changes to the risk distribution in the population as the result of demographic changes or policy interventions. We show that an increase in the risk distribution, according to the monotone likelihood ratio ordering of distribution, leads to lower utility for almost all consumer types.”

According to the news reporters, the research concluded: “In contrast, the effect is ambiguous when considering the first-order stochastic dominance ordering.”

This research has been peer-reviewed.

For more information on this research see: Risk Classification In Insurance Markets With Risk and Preference Heterogeneity. The Review of Economic Studies, 2023. The Review of Economic Studies can be contacted at: Oxford Univ Press, Great Clarendon St, Oxford OX2 6DP, England.

Our news correspondents report that additional information may be obtained by contacting Vitor Farinha Luz, University of British Columbia, Vancouver, Bc, Canada. Additional authors for this research include Piero Gottardi and Humberto Moreira.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1093/restud/rdad017. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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