Yinan Ying

1 Introduction It is well known that asymmetric information is present in many insurance markets (Akerlof 1970; Rothschild and Stiglitz 1976). In this environment, higher-risk buyers choose to purchase larger amounts of the product, leading to adverse selection and market inefficiency. A standard solution to eliminate the inefficiency associated with the positive correlation between the risk type and the purchase amount is to forbid choices by mandating that all buyers purchase insurance.