Working Paper: NBER ID: w24711
Authors: Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko
Abstract: 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.
Keywords: No keywords provided
JEL Codes: D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market conditions (P42) | equilibrium existence (C62) |
| information disclosure strategies (D82) | market outcomes (P42) |
| structure of insurance contracts (G22) | efficiency of market outcomes (D61) |
| equilibrium allocation (D51) | Pareto efficiency (D61) |
| information strategies (L86) | similar outcomes (C52) |