Incentive Pareto Efficiency in Monopoly Insurance Markets with Adverse Selection (opens in new tab)

We study a monopolistic insurance market with hidden information, where the agent's type $\theta$ is private information that is unobservable to the insurer, and it is drawn from a continuum of types. The hidden type affects both the loss distribution and the risk attitude of the agent. Within this framework, we show that a menu of contracts is incentive efficient if it maximizes social welfare function, subject to incentive compatibility an...