School of Management
3399 North Road
Poughkeepsie, NY 12601
Institutional Affiliation: Marist College
NBER Working Papers and Publications
|June 2018||Characterization, Existence, and Pareto Optimality in Insurance Markets with Asymmetric Information with Endogenous and Asymmetric Disclosures: Revisiting Rothschild-Stiglitz|
with Joseph E. Stiglitz, Jungyoll Yun: w24711
We study the Rothschild-Stiglitz model of competitive insurance markets with endogenous information disclosure by both firms and consumers. We show that an equilibrium always exists, (even without the single crossing property), and characterize the unique equilibrium allocation. With two types of consumers the outcome is particularly simple, consisting of a pooling allocation which maximizes the well-being of the low risk individual (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk individual to full insurance (at his own odds). We show that this outcome is extremely robust and Pareto efficient.
|June 2017||Equilibrium in a Competitive Insurance Market Under Adverse Selection with Endogenous Information|
with Joseph E. Stiglitz, Jungyoll Yun: w23556
This paper investigates the existence and nature of equilibrium in a competitive insurance market under adverse selection with endogenously determined information structures.
Rothschild-Stiglitz (RS) characterized the self-selection equilibrium under the assumption of exclusivity, enforcement of which required full information about contracts purchased. By contrast, the Akerlof price equilibrium described a situation where the insurance firm has no information about sales to a particular individual.
We show that with more plausible information assumptions - no insurance firm has full information but at least knows how much he has sold to any particular individual - neither the RS quantity constrained equilibrium nor the Akerlof price equilibrium are sustainable.
But when the informat...