Randomization with Asymmetric Information

Richard Arnott and Joseph Stiglitz

No 2507, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is by now well-known that, in the presence of moral hazard or adverse selection, randomization of insurance premia and benefits may be Pareto efficient. This paper: i) provides a typology of the various forms that randomization may take; ii) derives necessary and/or sufficient conditions for the desirability of these various forms of randomization; iii) obtains some simple characterization theorems of the efficient random policies; iv) gives some intuition behind the results; and v) considers why randomization appears to occur less often in practice than the theory suggests it should.

Date: 1988-02
Note: EFG
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Citations: View citations in EconPapers (95)

Published as Rand Journal of Economics, vol 19, Fall 1988, pp344-362.

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Working Paper: Randomization with Asymmetric Information (2010)
Journal Article: Randomization with Asymmetric Information (1988)
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