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Latent Policies: An Extended Example

Author

Listed:
  • 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.

Suggested Citation

  • Richard Arnott & Chong-en Bai & Brian Sack, 1996. "Latent Policies: An Extended Example," Boston College Working Papers in Economics 353., Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:353
    as

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    File URL: http://fmwww.bc.edu/EC-P/wp353.pdf
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    References listed on IDEAS

    as
    1. Richard Arnott & Joseph Stiglitz, 1993. "Price Equilibrium, Efficiency, And Decentralizability In Insurance Markets With Moral Hazard," Boston College Working Papers in Economics 254, Boston College Department of Economics.
    2. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
    3. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    latent policies; insurance markets;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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