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Latent Policies: An Extended Example

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  • Richard Arnott

    ()
    (Boston College)

  • Chong-en Bai

    ()
    (Boston College)

  • Brian Sack

    (Massachusetts Institute of Technology)

Abstract

Arnott and Stiglitz (1993) have argued that, in competitive insurance markets with moral hazard, equilibrium may entail firms offering latent policies--policies that are not bought in equilibrium but are kept in place to deter entry. This paper provides an extended example of such an equilibrium, which not only proces that latent policies can be present in equilibrium but also elucidates the mechanism which makes them potentially effective in deterring entry.

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File URL: http://fmwww.bc.edu/EC-P/wp353.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 353..

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Length: 29 pages
Date of creation: May 1996
Date of revision:
Handle: RePEc:boc:bocoec:353

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Related research

Keywords: latent policies; insurance markets;

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  1. Richard J. Arnott & Joseph E. Stiglitz, 1990. "The Basic Analytics of Moral Hazard," NBER Working Papers 2484, National Bureau of Economic Research, Inc.
  2. Arnott, R. & Stiglitz, J., 1994. "Price Equilibrium, Efficiency, and Decentralizability in Insurance Markets with Moral Hazard," Papers 05, Laval - Laboratoire Econometrie.
  3. Kahn, Charles M. & Mookherjee, Dilip, 1995. "Market failure with moral hazard and side trading," Journal of Public Economics, Elsevier, vol. 58(2), pages 159-184, October.
  4. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  5. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
  6. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
  7. Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
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