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Competitive Pooling: Rothschild-Stiglitz Reconsidered

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  • P. Dubey
  • J. Geanakoplos

Abstract

We build a model of competitive pooling, which incorporates adverse selection and signalling into general equilibrium. Pools are characterized by their quantity limits on contributions. Households signal their reliability by choosing which pool to join. In equilibrium, pools with lower quantity limits sell for a higher price, even though each household's deliveries are the same at all pools. The Rothschild-Stiglitz model of insurance is included as a special case. We show that by recasting their hybrid oligopolistic-competitive story into our perfectly competitive framework, their separating equilibrium always exists (even when they say it doesn't) and is unique.

Suggested Citation

  • P. Dubey & J. Geanakoplos, 2001. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," Department of Economics Working Papers 01-10, Stony Brook University, Department of Economics.
    • Handle: RePEc:nys:sunysb:01-10
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    References listed on IDEAS

    as
    1. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2005. "Default and Punishment in General Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 1-37, January.
    2. Pradeep Dubey & John Geanakoplos, 2001. "Insurance Contracts Designed by Competitive Pooling," Cowles Foundation Discussion Papers 1315, Cowles Foundation for Research in Economics, Yale University.
    3. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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