Information design in competitive insurance markets

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