What does this research mean for the field?

In monopolistic insurance markets with probability weighting, Stackelberg equilibrium contracts exhibit a layer-type structure where full insurance is provided only on loss layers where the policyholder is more pessimistic than the insurer, and these contracts are Pareto efficient but yield no welfare gain to the policyholder. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.SUPPORTS_CONSENSUS.

What question did this study set out to answer?

This study investigates Stackelberg equilibria in a monopolistic insurance market aiming to optimize pricing and coverage based on policyholder risk aversion.

June 19, 2026Astin BulletinOpen Access

Stackelberg equilibria in monopoly insurance markets with probability weighting

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Authors

MAMaria AndraosUniversity of Waterloo MGMario GhossoubUniversity of Waterloo BLBin LiUniversity of Waterloo

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Implication

Randomized trial explores equilibrium contracts in monopoly insurance markets, suggesting pricing impacts policyholder risk aversion.

Key Points

This study investigates Stackelberg equilibria in a monopolistic insurance market aiming to optimize pricing and coverage based on policyholder risk aversion.
Analyzed the interaction between a profit-maximizing insurer and a risk-averse policyholder in a sequential-move framework.
Characterized equilibria based on the policyholder's distortion risk measure and the insurer's pricing functional.
Examined coverage structure and optimal pricing distortion across various risk aversion degrees.
Equilibria contracts show a layered structure with full coverage for losses the policyholder deems risky, enhancing insurer profits as risk aversion increases.
Pricing distortion aligns with the policyholder’s marginal willingness to insure tail losses, reinforcing the impact of risk aversion.
Contracts achieved are Pareto efficient without generating welfare gains for the policyholder.

Cite This Study

Andraos et al. (2026) studied this question.

synapsesocial.com/papers/6a34dec865a5b0777af2e206 https://doi.org/10.1017/asb.2026.10106

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Stackelberg equilibria in monopoly insurance markets with probability weighting

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Member takes

Implication

Key Points

Cite This Study

Stackelberg equilibria in monopoly insurance markets with probability weighting

Discussion

Member takes

Implication

Key Points

Cite This Study

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