Recently, Jia Ruo, Associate Professor of the School of Economics at Peking University, published a collaborative paper "Technology Heterogeneity and Market Structure" in the Journal of Risk and Insurance , the top international journal in the field of risk management and insurance. The co-authors include Prof. Martin Eling of University of St.Gallen, Lin Jieyu, Candidate of Ph.D. at Tsinghua Univeristy and Prof. Casey Rothschild of Wellesley College.

　　New technologies may allow principals or firms to learn more quickly about the characteristics of their agents or clients—at some cost of employing that technology. We study the implications of this speed-versus-cost tradeoff for equilibrium pricing and purchasing decisions in insurance markets featuring adverse selection. In particular, we study dynamic competitive equilibrium in a theoretical model featuring individuals who differ in their privately known risk types and featuring two types of insurers: conventional insurers who employ a legacy learning technology and tech insurers who employ a new technology. Equilibrium in our model features sorting of low-risk types into tech firms and high-risk types into conventional firms. We show, intuitively, that lowering the technology cost raises this cutoff and thus increases the equilibrium market share of tech firms. Perhaps counter-intuitively, however, we show that adverse selection effects within the conventional market can cause an attempt by conventional insurers to catch up with tech firms—by increasing the speed at which they learn about the risk types of their insureds—to backfire and lead to an increase in the market share of tech firms. Our results are readily adapted to bank lending and labor market settings.

　　Article Link:

　　http://doi.org/10.1111/jori.12369

　　Eling, M., Jia, R., Lin, J., & Rothschild, C., 2021, Technology Heterogeneity and Market Structure, Journal of Risk and Insurance, http://doi.org/10.1111/jori.12369.

　　Profile of Jia Ruo

　　Ruo (Alex) Jia is an Associate Professor of Insurance in the School of Economics, Peking University. His research field is insurance economics, including information asymmetry in insurance markets (the impacts of digital technology, dynamic contract, and group insurance), insurance institutional research (solvency regulation, failure prediction using conventional and machine learning techniques, internationalization, systemic risk, and insurer performance), and social insurance (public-private partnerships and the welfare impact of the pension system). He has published in the Journal of Risk and Insurance, Geneva Risk and Insurance Review, Journal of Banking and Finance, and Economic Research Journal, among others. He serves in the Editorial Board of the Geneva Papers on Risk and Insurance-Issues and Practice and as an Associate Editor of the Risk Management and Insurance Review. He is a member of the Solvency Supervision Expert Committee of the China Banking and Insurance Regulatory Commission, a member of the Board of Governors of the Asia-Pacific Risk and Insurance Association, a member of the Risk Theory Society, and a co-founder of the Modern Risk Society.