Pooling And Redistribution With Moral Hazard
AbstractWe study a model in which risk-averse consumers obtain mutual insurance by participating voluntarily in pools. More precisely, consumers commit to contributing a fraction of their future uncertain endowment to a common pool. In exchange, they gain the right to receive a share of the total return of the pool, in proportion to their promises. Consumers influence the likelihood of the good state of nature by undertaking a hidden action. We therefore provide a model of mutual insurance with moral hazard. We first analyze the equilibrium properties of the model and then illustrate how an aggregate pool of heterogenous consumers Pareto dominates the two segregated pools.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2007-19.
Length: 28 pages
Date of creation: Oct 2007
Date of revision:
Publication status: Published by Ivie
moral hazard; pool of promises; heterogeneous consumers;
Find related papers by JEL classification:
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
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