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On Rothschild-Stiglitz as Competitive Pooling

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Author Info
Alberto Martin ()

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Abstract

Dubey and Geanakoplos [2002] have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild-Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is unique. We prove that their uniqueness result is not a consequence of the framework, but rather of their definition of refined equilibria. When other types of perturbations are used, the model allows for many pooling allocations to be supported as such: in particular, this is the case for pooling allocations that Pareto dominate the separating equilibrium.

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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 917.

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Date of creation: Aug 2003
Date of revision: Jan 2006
Handle: RePEc:upf:upfgen:917

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

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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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gale, Douglas, 1996. "Equilibria and Pareto Optima of Markets with Adverse Selection," Economic Theory, Springer, vol. 7(2), pages 207-35, February.
    Other versions:
  2. Pradeep Dubey & John Geanakoplos, 2001. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," Cowles Foundation Discussion Papers 1346R2, Cowles Foundation, Yale University, revised Feb 2002. [Downloadable!]
  3. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Blackwell Publishing, vol. 59(2), pages 229-55, April. [Downloadable!] (restricted)
  4. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325. [Downloadable!] (restricted)
    Other versions:
  5. 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.
  6. Pradeep Dubey & John Geanakoplos, 2002. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1529-1570, November. [Downloadable!] (restricted)
  7. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alberto Martin, 2004. "Endogenous Credit Cycles," Economics Working Papers 916, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2008. [Downloadable!]
  2. Alberto Martin, 2008. "Adverse Selection, Credit, and Efficiency: the Case of the Missing Market," Economics Working Papers 1085, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2009. [Downloadable!]
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