Meglena Jeleva

Risk Mutualization and Competition in Insurance Markets

The aim of this paper is to analyze the impact of mutual firms on competition in the insurance market. We distinguish two actors in this market: mutual firms, which belong to their pooled members, and traditional companies, which belong to their shareholders. Our approach differs from the literature by one crucial assumption: the expected utility of the consumers depends on the size of their insurance firm, which generates network externalities in this market. Thus, the choice of a contract results in a trade-off between the premium level and the probability of that premium being ex-post adjusted. The optimal contract offered by a mutual firm involves a systematic ex-post adjustment (negative or positive), while the contracts a company offers imply a fixed premium that is possibly negatively adjusted at the end of the contractual period. In an oligopoly game, we show that three types of configurations are possible at equilibrium: either one mutual firm or insurance company is active, or a mixed structure emerges in which two or more companies share the market with or without a mutual firm.

Health Prevention and Savings: How to Deal with Fatalism?

In this paper, we analyze the determinants of primary prevention and the social optimum. First, we analyze optimal decisions on primary prevention and savings when individuals face a health risk involving expenses that can not be covered by any insurance (private or public). To manage health risks, individuals have two possibilities: invest in primary prevention, in order to reduce the probability of the disease and/or save, in order to face the costs of the disease that are not covered by insurance. We show that the impact of wealth and interest rates on prevention and savings decisions strongly depends on the perceived substituability between health and wealth. Moreover, agents have their own risk perceptions which inuence their decisions. In the second part of the paper, as prevention generates externalities, individuals’ optimal levels of prevention are lower than the socially optimal ones. In this context, we analyze the social optimum and its decentralization by tax-nanced government