Extraction of surplus under adverse selection: the case of insurance markets

Article Abstract:

The extraction of surplus in the insurance market is evaluated using a principal-agent setting with two risk averse agents with different information distributions. The full surplus extraction is dependent the degree of risk and liability of the agents. The possibility of agents incurring unlimited liability is also applicable to other diverse markets. The approach is complimentary to a model by Cremer and McLean which assumed a correlation between risk neutrality and interdependence.

Insurance, Insurance Carriers and Related Activities, INSURANCE CARRIERS, Risk (Economics), Surplus (Accounting)

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Endogenous determination of the degree of market-incompleteness in futures innovation

Article Abstract:

The determination of the number of futures contracts that an exchange creates is analyzed. The number of contracts that exchanges are willing to create could have an upper bound if differential information is available to investors, even if exchanges can create futures contracts without incurring any costs. The types of contracts in a stylized economy are examined together with the number of contracts that exchanges are willing to create.

Innovations, Financial markets, Commodity exchanges, Futures

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