NBER WORKING PAPER SERIES
CHARACTERIZATION, EXISTENCE, AND PARETO OPTIMALITY IN INSURANCE MARKETS WITH ASYMMETRIC INFORMATION WITH ENDOGENOUS AND ASYMMETRTIC DISCLOSURES - Working Paper #315
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.
About the Authors
Initiative for Policy Dialogue (IPD)
Joseph E. Stiglitz is co-President of the Initiative for Policy Dialogue, and Chairman of the Committee on Global Thought at Columbia University. He is University Professor at Columbia, teaching in its Economics Department, its Business School, and its School of International and Public Affairs. He chaired the UN Commission of Experts on Reforms of the International Monetary and Financial System, created in the aftermath of the financial crisis by the President of the General Assembly. He is former Chief Economist and Senior Vice-President of the World Bank and Chairman of President Clinton’s Council of Economic Advisors. He was awarded the Nobel Memorial Prize in Economics in 2001.
My main research interests are in game theory, mainly in information economics (strategic communication, information provision and design, and persuasion) as well as the implications of memory and rationality, broadly understood, on strategic behavior. Aside from that I am also interested in repeated games and experimental economics.
For the 2018-2019 academic year I am excited to join the Department of Economics at the University of Pittsburgh as a visiting assistant professor.
Jungyoll Yun of Columbia University, NY CU with expertise in Public Finance, Public Economics, Labor Economics.