The industrial organization top journal RAND Journal of Economics has accepted article “Multidimensional Private Information, Market Structure and Insurance Markets” from assistant professor Zena Wu. Information asymmetry is currently one of the most important research subjects in the fields of insurance. Traditional economy theory holds the view that the information asymmetry between policyholder and insurer would cause adverse selection, leading to a higher risk for insurance consumer. The positive correlation property of compensation and posterior risk is a significant evidence for testing information asymmetry of insurance market in empirical research. This paper explores whether the market would appear PCP feature in Akerlof’s information asymmetry system when the policy holder get another dimension of information superiority apart from their own risk (Degree of risk aversion).

    The paper suggests that: 1. If the insurance market is perfectly competitive, selection based on multidimensional private information does not result in negative correlation property in equilibrium, unless there is a sufficiently high loading factor, 2. If the insurance market is monopolistic or imperfectly competitive, however, it is claimed that it is possible to generate negative correlation property in equilibrium when risk and risk preference types are sufficiently negative dependent. In addition to these findings, it also clarifies the connections between some of the important concepts such as adverse/advantageous selection and positive/negative correlation property.