MG7. Refer to the reading by Einav and Finkelstein: "Adverse Selection: Theory and Empirics in Pictures" a) Take the case in which all individuals are risk averse, so that marginal costs slope down. In that case, why might it be optimal (socially efficient) for insurance takeup to be less than 100%?
Added by Henry R.
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This implies that they are willing to pay a premium to transfer the risk to an insurance company. Now, let's consider the case where insurance take-up is 100%. This means that every individual in the population purchases insurance. However, if insurance take-up Show more…
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