Achim Wambach
University of Cologne
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Publication
Featured researches published by Achim Wambach.
Games and Economic Behavior | 2010
Florian Englmaier; Achim Wambach
We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a strong tendency towards linear sharing rules. Third, it delivers a simple rationale for team based incentives in many environments. Fourth, the Sufficient Statistics Result is violated. Dependent on the environment, optimal contracts may be either overdetermined or incomplete.
Geneva Risk and Insurance Review | 1999
Ray Rees; Hugh Gravelle; Achim Wambach
There have been major changes in the way European insurance markets are regulated, and there is still considerable debate about what the form and scope of regulation should be. This article examines the arguments for solvency regulation when consumers are fully informed of the insurers insolvency risk. It is shown firms always provide enough capital to ensure solvency, unless there are restrictions on the composition of their asset portfolios. The conclusion holds even when competition means that only normal profits can be earned. This suggests that the role of regulation in insurance markets should be confined to providing consumers with information about the default risk of insurers.
Journal of Health Economics | 2000
R. Strohmenger; Achim Wambach
In this paper, the effects of new methods for risk classification, e.g., genetic tests, on health insurance markets are studied using an insurance model with state contingent utility functions. The analysis focuses on the case of treatment costs higher than the patients willingness to pay where standard models of asymmetric information are not applicable. In this case, the benefit from signing a fair insurance contract will be positive only if illness probability is low. In contrast to the common perception, additional risk classification under symmetric information can be efficiency enhancing. Under asymmetric information about illness risks, however, there can be complete market failure.
European Economic Review | 2001
Roman Inderst; Achim Wambach
Ever since the seminal work by Rothschild and Stiglitz (1976) on competitive insurance markets under adverse selection the equilibrium-non-existence problem has been one of the major puzzles in insurance economics. We extend the original analysis by considering firms that face capacity constraints due to limited capital. Two scenarios are considered: if the demand at any insurer exceeds the capacity: either consumers are rationed, or they are served, but the insurer faces a larger risk of bankruptcy. We show under mild assumptions that a pure strategy equilibrium exists, where every consumer buys his appropriate Rothschild-Stiglitz contract.
Games and Economic Behavior | 2002
Ana B. Ania; Thomas Tröger; Achim Wambach
Since the seminal work by Rothschild and Stiglitz on competitive insurance markets under adverse selection the problem of non-existence of equilibrium hat puzzled many economists. In this paper we approach this problem from an evolutionary point of view. In a dynamic model insurance companies remove lossmaking contracts from the market and copy profit making ones. Occasionally, they also experiment, adding new contracts or removing current ones arbitrarily. We show that the Rothschild-Stiglitz outcome arises in the long run if it cinstitutes an equilibrium in the static framework, but also if it is not an equilibrium, provides that firms only experiment with contracts in the vicinity of their current portfolio.
Foundations and Trends in Microeconomics | 2008
Ray Rees; Achim Wambach
In this relatively short survey, we present the core elements of the microeconomic analysis of insurance markets at a level suitable for senior undergraduate and graduate economics students. The aim of this analysis is to understand how insurance markets work, what their fundamental economic functions are, and how efficiently they may be expected to carry these out.
International Journal of Industrial Organization | 1999
Achim Wambach
Abstract The Bertrand paradox states that two firms are sufficient for perfect competition. By introducing risk-averse firms under cost uncertainty we show that this result no longer holds. If firms are required to meet demand, a price above the competitive price can be sustained even if the number of firms gets large. Furthermore, in contrast to standard oligopoly models, increasing the market size and increasing the number of firms by the same proportion will lead to an increase in price. A numerical example illustrates the results.
Journal of Economic Theory | 2015
Dirk Bergemann; Achim Wambach
We consider the design of an optimal auction in which the seller can determine the allocation and the disclosure rule of the mechanism. Thus, in contrast to the standard analysis of a optimal auctions, the seller can explicitly design the disclosure of the information received by each bidder as his private information. We show that the optimal disclosure rule is a sequential disclosure rule, implemented in an ascending price auction. In the optimal disclosure mechanism, each losing bidder learns his true valuation, but the winning bidder only learns that his valuation is sufficiently high to win the auction. We show that in the optimal auction, the posterior incentive and participation constraints of all the bidders are satisfied. In the special case in which the bidders have no private information initially, the seller can extract the entire surplus.
Management Science | 2016
Nicolas Fugger; Elena Katok; Achim Wambach
Although binding reverse auctions have attracted a good deal of interest in the academic literature, in practice, dynamic nonbinding reverse auctions are the norm in procurement. In those, suppliers submit price quotes and can respond to quotes of their competitors during a live auction event. However, the lowest quote does not necessarily determine the winner. The buyer decides after the contest, taking further supplier information into account, on who will be awarded the contract. We show, both theoretically and empirically, that this bidding format enables suppliers to collude, thus leading to noncompetitive prices. This paper was accepted by Teck-Hua Ho, behavioral economics.
Games and Economic Behavior | 2013
Matthias Lang; Achim Wambach
Most insurance companies publish few data on the occurrence and detection of insurance fraud. This stands in contrast to the previous literature on costly state verification, which has shown that it is optimal to commit to an auditing strategy. The credible announcement of thoroughly auditing claim reports is a powerful deterrent. Yet, we show that uncertainty about fraud detection can be an effective strategy to deter ambiguity-averse agents from reporting false insurance claims. If, in addition, the auditing costs of the insurers are heterogeneous, it can be optimal not to commit, because committing to a fraud-detection strategy eliminates the ambiguity about auditing. Thus, strategic ambiguity can be an equilibrium outcome in the market. Even competition does not force firms to provide the relevant information. This finding is also relevant in other auditing settings, like tax enforcement.