POOLING AND REDISTRIBUTION WITH MORAL HAZARD

Catarina Goulão () and Luca Panaccione

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

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.

Keywords: moral hazard; pool of promises; heterogeneous consumers (search for similar items in EconPapers)
JEL-codes: D5 H23 O16 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-10
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2007-19

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