City Research Online

The probationary period as a screening device: competitive markets

Spreeuw, J. & Karlsson, M. (2006). The probationary period as a screening device: competitive markets (Actuarial Research Paper No. 168). London, UK: Faculty of Actuarial Science & Insurance, City University London.


Seminal papers about asymmetry of information in a competitive insurance market, and the monetary deductible as a screening device show that any existing equilibrium is of a separating type. High risks buy complete insurance whilst low risks buy partial insurance. Rothschild and Stiglitz (1976) deal with insurance companies showing Nash behaviour, while Miyazaki (1977) and Spence (1978) consider firms with Wilson foresight. In this paper, we analyze the strength of the probationary period as a screening device. We show that in such a case a) under Nash behavior, low risks may prefer not to purchase any insurance at all in equilibrium and b)under Wilson foresight, a pooling equilibrium may exist.

Publication Type: Monograph (Working Paper)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Actuarial Science & Insurance > Actuarial Research Reports
Download (727kB) | Preview



Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login