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Equilibrium in the insurance market with adverse selection and fraud

Authors S. Hun Seog and Chang Mo Kang

Discussant Larry Y .Tzeng

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Contributions of the Paper (1/2) (1) Consider a two-dimension adverse

selection problem (risk type and honest type) based on Picard (1996) and Rothschild and Stiglitz (1976).

(2)Pooling in honest type and separating in risk type.

(3) The commitment can improve the social welfare.

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Contributions of the Paper (2/2)

The insurance market may fail because high risk type policyholders are audited more frequently than low risk type policyholders, and leave the insurance market.

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Suggestions (1) I would suggest that the

authors also analyze the problem under Wilson (1977) conjecture.

(2) I would suggest that the authors elaborate more on whether the fine is paid to the insurer.

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Suggestions (3) I would suggest that the

authors discuss the possible results if the risk type and honest type are correlated.