Public Information and Experience Rating

This Article Investigates the Practice of Experience Rating by Insurance Companies in the Presence of Symmetric Information Between the Insured and the Insurer. Experience Rating Is Treated As the Acquisition of Information by Both Parties to the Insurance Contract. When the Insured Buys Insurance Before Information Is Revealed, He Buys Two Types of Insurance, One Against the Loss and One Against the Possibility of Being Revealed to Be a Bad Risk. Experience Rating Destroys the Second Type of Insurance. However, Information Does Not Always Reduce Welfare. We Show That When the Insured Engages Is Production Activities, the Use of Experience Rating May Increase Welfare. Examples Are Given.