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Competitive Pooling: Rothschild-Stiglitz Reconsidered

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Author Info
Pradeep Dubey (SUNY, Stony Brook)
John Geanakoplos () (Yale University, Cowles Foundation)
Abstract

We build a model of competitive pooling, which incorporates adverse selection and signalling into general equilibrium. Pools are characterized by their quantity limits on contributions. Households signal their reliability by choosing which pool to join. In equilibrium, pools with lower quantity limits sell for a higher price, even though each household's deliveries are the same at all pools. The Rothschild-Stiglitz model of insurance is included as a special case. We show that by recasting their hybrid oligopolistic-competitive story into our perfectly competitive framework, their separating equilibrium always exists (even when they say it doesn't) and is unique.

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File URL: http://cowles.econ.yale.edu/P/cd/d13a/d1346.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1346.

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Length: 34 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:cwl:cwldpp:1346

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Related research
Keywords: Competitive pooling; insurance; adverse selection; signalling; refined equilibrium; separating equilibrium;

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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