IDEAS home Printed from https://ideas.repec.org/p/kud/kuiedp/0514.html
   My bibliography  Save this paper

On the Political Economy of Adverse Selection

Author

Listed:
  • Hervé Crès

    (HEC School of Management)

  • Mich Tvede

    (Department of Economics, University of Copenhagen)

Abstract

We consider a standard insurance economy where consumers are supposed to vote over menus of insurance contracts: A menu of contracts is majority stable if there does not exist another menu which is supported by an appropriate majority of consumers. We compute the smallest level of super majority for which there always exists a stable menu of contracts, and such that all stable menus of contracts are Pareto optimal. Lower super majority voting rules may ensure existence of stable menus if individual states and/or types of consumers are aggregated, but then stable menus of contracts need not be Pareto optimal: hence a trade-off between Pareto optimality and conservativeness of the voting rule is exhibited.

Suggested Citation

  • Hervé Crès & Mich Tvede, 2005. "On the Political Economy of Adverse Selection," Discussion Papers 05-14, University of Copenhagen. Department of Economics, revised Jun 2006.
    • Handle: RePEc:kud:kuiedp:0514
    as

    Download full text from publisher

    File URL: http://www.econ.ku.dk/english/research/publications/wp/2005/0514.pdf/
    Download Restriction: no
    File URL: http://www.econ.ku.dk/english/research/publications/wp/2005/0514New.ed.pdf/
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-636, May.
    2. Mich Tvede & Hervé Crés, 2005. "Voting in assemblies of shareholders and incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 887-906, November.
    3. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
    4. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:0514. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann). General contact details of provider: http://edirc.repec.org/data/okokudk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.