Economic Theory

, Volume 31, Issue 2, pp 371–386

On Rothschild–Stiglitz as Competitive Pooling

Exposita Note

DOI: 10.1007/s00199-006-0089-3

Cite this article as:
Martin, A. Economic Theory (2007) 31: 371. doi:10.1007/s00199-006-0089-3

Abstract

Dubey and Geanakoplos (Q J Econ 117:1529–1570, 2002) have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild–Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is unique.

We prove that their uniqueness result is not a consequence of the framework, but rather of their definition of refined equilibria. When other types of perturbations are used, the model allows for many pooling allocations to be supported as such: in particular, this is the case for pooling allocations that Pareto dominate the separating equilibrium.

Keywords

Competitive pooling Insurance Adverse selection Signalling Refined equilibrium Separating equilibrium 

JEL Classification Numbers

D4 D5 D41 D52 D81 D82 

Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.CREI and Universitat Pompeu FabraBarcelonaSpain