Abstract
The article shows that heterogeneous incomplete private information can explain the limited existence of guaranteed renewable health insurance (GR) contracts in an otherwise frictionless markets. We derive a unique equilibrium that can be of the form that either only a portion of the population or none will cover themselves against premium risk with a GR contract. Increased risk aversion, increased premium risk, and first-order stochastic improvements of the distribution of private information increase the likelihood of positive take-up. In case GR contracts are in demand, increased risk aversion and first-order stochastic improvements of the distribution of private information lead to more individuals purchasing the GR contract.
Published Version
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