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Randomization with Asymmetric Information a Simplified Exposition


  • Richard Arnott
  • Joseph E. Stiglitz


A series of recent papers investigated the desirability of randomization of insurance contracts in the presence of moral hazard. All treat a continuum of possible outcomes, which tends to obscure the intuition. In this paper, we treat the two-outcome case, employing derivations which highlight the intuition. We also discuss randomization with adverse selection.

Suggested Citation

  • Richard Arnott & Joseph E. Stiglitz, 1985. "Randomization with Asymmetric Information a Simplified Exposition," Working Papers 594, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:594

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    References listed on IDEAS

    1. Engle, Robert F., 1982. "A general approach to lagrange multiplier model diagnostics," Journal of Econometrics, Elsevier, vol. 20(1), pages 83-104, October.
    2. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
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    Cited by:

    1. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-467, March.
    2. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.

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