Preferences satisfying rank-dependent utility exhibit three necessary properties: coalescing (forming the union of events having the same consequence), status-quo event commutativity, and rank-dependent additivity. The major result is that, under a few additional, relatively non-controversial,...

This paper explores the potential for welfare-improving public risk adjustment in health insurance markets characterized by adverse selection. The optimal risk adjustment system is derived in a theoretical model under a range of assumptions regarding government information and market...