Price Equilibrium, Efficiency, and Decentralizability in Insurance Markets

Richard Arnott and Joseph Stiglitz

No 3642, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we investigate the descriptive and normative properties of competitive equilibrium with moral hazard when firms offer "price contracts" which allow clients to purchase as much insurance as they wish at the quoted prices. We show that a price equilibrium always exists and is one of three types: i) zero profit price equilibrium - zero profit, zero effort, full insurance ii) positive profit price equilibrium - positive profit, positive effort, partial insurance iii) zero insurance price equilibrium - zero insurance, zero profit, positive effort. We also demonstrate circumstances under which the linear taxation of price insurance allows decentralization of the social optimum (conditional on the unobservability of effort), and when it, does not, whether it is at least utility-improving.

Date: 1991-03
Note: PE
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.nber.org/papers/w3642.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3642

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3642

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().