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Pooling promises with moral hazard

Author

Listed:
  • Catarina Goulão

    () (Toulouse School of Economics (GREMAQ, INRA))

  • Luca Panaccione

    () (DEDI and CEIS, Università degli Studi di Roma "Tor Vergata")

Abstract

We extend the framework of Dubey and Geanakoplos (2002) to the case of moral hazard. We analyze the equilibrium properties of the model and we show that equal ex-ante consumers may choose to promise differently, and, as a consequence, choose different actions. This illustrates how the pool of voluntary promises can induce redistribution from consumers with high expected endowment to those with low expected endowment.

Suggested Citation

  • Catarina Goulão & Luca Panaccione, 2015. "Pooling promises with moral hazard," Economics Bulletin, AccessEcon, vol. 35(1), pages 460-465.
  • Handle: RePEc:ebl:ecbull:eb-14-00093
    as

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    References listed on IDEAS

    as
    1. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, pages 337-356.
    2. Alberto Martin, 2007. "On Rothschild–Stiglitz as Competitive Pooling," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 371-386.
    3. Cabreales, Antonio & Calvo-Armengol, Antoni & Jackson, Matthew O., 2003. "La Crema: A Case Study of Mutual Fire Insurance," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 425-458, April.
    4. repec:pri:cheawb:case_paxson_economic_status_paper is not listed on IDEAS
    5. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, pages 337-356.
    6. Guinnane, Timothy W. & Streb, Jochen, 2011. "Moral Hazard in a Mutual Health Insurance System: German Knappschaften, 1867–1914," The Journal of Economic History, Cambridge University Press, vol. 71(01), pages 70-104, March.
    7. Anne Case & Darren Lubotsky & Christina Paxson, 2002. "Economic Status and Health in Childhood: The Origins of the Gradient," American Economic Review, American Economic Association, pages 1308-1334.
    8. Janet Currie, 2009. "Healthy, Wealthy, and Wise: Socioeconomic Status, Poor Health in Childhood, and Human Capital Development," Journal of Economic Literature, American Economic Association, pages 87-122.
    9. Murgai, Rinku & Winters, Paul & Sadoulet, Elisabeth & Janvry, Alain de, 2002. "Localized and incomplete mutual insurance," Journal of Development Economics, Elsevier, pages 245-274.
    10. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 383-413.
    11. Pradeep Dubey & John Geanakoplos, 2002. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," The Quarterly Journal of Economics, Oxford University Press, pages 1529-1570.
    12. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, pages 145-166.
    13. Alberto Martin, 2007. "On Rothschild–Stiglitz as Competitive Pooling," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 371-386.
    14. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, pages 1211-1244.
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    More about this item

    Keywords

    moral hazard; pool of promises;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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