TY  - JOUR
AU  - Arnott,Richard J.
AU  - Stiglitz,Joseph E.
TI  - Randomization with Asymmetric Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2507
PY  - 1988
Y2  - February 1988
UR  - http://www.nber.org/papers/w2507
L1  - http://www.nber.org/papers/w2507.pdf
N1  - Author contact info:
Richard J. Arnott
Department of Economics
Boston College
Chestnut Hill, MA 02467
Tel: 617/552-3674
Fax: 617/552-2308
E-Mail: richard.arnott@ucr.edu

Joseph E. Stiglitz
Uris Hall, Columbia University
3022 Broadway, Room 814
New York, NY  10027
Tel: 212/854-0671
Fax: 212/662-8474
E-Mail: jes322@columbia.edu
M2  - featured in NBER digest on 1988-07-01
AB  - It is by now well-known that, in the presence of moral hazard or adverse selection, randomization of insurance premia and benefits may be Pareto efficient. This paper: i) provides a typology of the various forms that randomization may take; ii) derives necessary and/or sufficient conditions for the desirability of these various forms of randomization; iii) obtains some simple characterization theorems of the efficient random policies; iv) gives some intuition behind the results; and v) considers why randomization appears to occur less often in practice than the theory suggests it should.
ER  -