Information design in competitive insurance markets

Daniel Garcia, Matan Tsur

Publications: Contribution to journalArticlePeer Reviewed


This paper characterizes the optimal information structure in competitive insurance markets with adverse selection. We consider a regulator that assigns ratings to individuals according to their expected costs. Insurers observe these ratings and compete as in Akerlof (1970). The optimal rating system minimizes ex-ante risk subject to participation constraints. We prove that in any such market there exists a unique optimal system under which all individuals trade and the ratings match low-cost types with high-cost types negative assortatively. We provide a simple algorithm that yields the optimal system and examine implications for government regulations of insurance markets.

Original languageEnglish
Article number105160
Number of pages18
JournalJournal of Economic Theory
Early online date18 Nov 2020
Publication statusPublished - Jan 2021

Austrian Fields of Science 2012

  • 502047 Economic theory
  • 502021 Microeconomics


  • HBE
  • Cat2
  • Information design
  • Adverse selection
  • Insurance markets

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