Economics · Information Economics

In an insurance market with two risk types (High risk with probability pH and Low risk with probability pL, where pH > pL), which of the following describes a separating equilibrium? A. High-risk types receive full insurance at an actuarially fair premium for high-risk types. B. Low-risk types receive partial insurance at a lower premium. C. Both types receive the same full-insurance contract at the pooling premium. D. The low-risk types are left with a distorted contract (partial insurance) to prevent high-risk types from mimicking them. Which statements correctly describe a separating equilibrium?