Insurance Markets with Differential Information

s: This paper attempts to understand the outcomes when each party of the insurance contracts simultaneously has superior information to the other. We decompose the risk of a policyholder into a general risk and a specific risk. We assume that policyholders have superior information about specific risks while insurers have superior information about general risks. When each risk can be either high or low, we find that low-general-risk policyholders purchase insurance, while highgeneral-risk policyholders are self-insured. Among the low-general-risk policyholders, high-specific-risk policyholders purchase full insurance, while low-specific-risk policyholders purchase partial insurance. When insurers can strategically use technology to publicize their information, efficiency is unambiguously improved since high-general-risk policyholders purchase insurance. A clientele relationship is also found: Low-general-risk policyholders purchase insurance from insurers that do not publicize information, while high-general-risk policyholders purchase from insurers that publicize information. Main results still hold when the model is extended to multiplerisk cases.