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Pooling And Redistribution With Moral Hazard

Author

Listed:
  • Catarina Goulão

    (Universidad de Alicante)

  • Luca Panaccione

    (LUISS Guido Cari)

Abstract

We 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.

Suggested Citation

  • Catarina Goulão & Luca Panaccione, 2007. "Pooling And Redistribution With Moral Hazard," Working Papers. Serie AD 2007-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2007-19
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-19.pdf
    File Function: Fisrt version / Primera version, 2007
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    Citations

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    Cited by:

    1. María Dolores Furió & Vicente Meneu, 2009. "Expectations and Forward Risk Premium in the Spanish Power Market," Working Papers. Serie AD 2009-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

    More about this item

    Keywords

    moral hazard; pool of promises; heterogeneous consumers;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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