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Latent Policies: An Extended Example

Richard Arnott (), Chong-En Bai and Brian Sack
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Brian Sack: Massachusetts Institute of Technology

No 353., Boston College Working Papers in Economics from Boston College Department of Economics

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.

Keywords: latent policies; insurance markets (search for similar items in EconPapers)
JEL-codes: D21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1996-05
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