Equilibrium And Optimality Of Competitive Insurance Market With One Dimensional Information Asymmetric Adverse Selection

The study of competitive insurance market equilibrium and its characteristics under one dimensional asymmetric information adverse selection, has been being one important focus in the field of microeconomics. Since the seminal work of "equilibrium in competitive insurance markets:An essay on the economics of imperfect information" published in Quarterly Journal of Economics, the extent researches in the subject have been rising. Pooling equilibrium and Separating equilibrium are now normative terms in Economics.After analysis and evaluation of the theory of adverse selection and its development, using R-S model as fundamental analysis framework, author made a deep research into the nature of competitive insurance market equilibrium and its optimality, The author show that the pooling equilibrium of competitive insurance market believed didn't exist in R-S model is not only exist but also stable as well, at the same time, author prove that the separating equilibrium of competitive insurance market is also exist and stable.Based on the conclusion of the above mentioned, author try in several ways such as perfect and imperfect risk classification, government intervention to study how to improve efficiency of competitive insurance market and, draw the conclusion that risk classification can lead to Pareto Improvement, and government intervention can lead to Kaldor Improvement in competitive insurance market.At the end of the paper, author gives out some specific suggestions and measures of averting adverse selection.