Equilibrium in Competitive Insurance Markets¶
Rothschild, M., & Stiglitz, J. (1976). Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information. Quarterly Journal of Economics, 90(4), 629-649.
Cited by¶
7 citations across 7 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Adverse Selection
- .
This sourceCanonical screening model of adverse selection in insurance: the uninformed insurer offers a contract menu inducing self-selection by risk type, a pure-strategy separating equilibrium can be broken by pooling deviations, and a pure-strategy equilibrium may fail to exist — supports the prime's non-existence and screening claims.
- .
- Information Asymmetry
- Insurance and labor: Both canonical asymmetric-information failure modes originate here. Adverse selection (hidden type) arises before contracting — high-risk applicants disproportionately seek insurance because they know their type and the insurer does not. Moral hazard (hidden action) arises after contracting — an insured party takes less care because the insurer cannot observe their behavior.
This sourceCanonical model of adverse selection (hidden type, pre-contract) and the screening response in insurance markets, where the uninformed insurer offers a contract menu inducing self-selection by risk type.
- Insurance and labor: Both canonical asymmetric-information failure modes originate here. Adverse selection (hidden type) arises before contracting — high-risk applicants disproportionately seek insurance because they know their type and the insurer does not. Moral hazard (hidden action) arises after contracting — an insured party takes less care because the insurer cannot observe their behavior.
- Risk Pooling
- A climate disaster affects all property insurance members in a region.
This sourceCanonical model of adverse selection (hidden type, pre-contract) and the screening response in insurance markets, where the uninformed insurer offers a contract menu inducing self-selection by risk type.
- A climate disaster affects all property insurance members in a region.
- Risk Transfer
- Adverse-selection mitigation transfers to public health: mandatory enrollment, community rating, and pre-existing-condition rules solve the same structural problem as compulsory third-party motor insurance and as cybersecurity carve-outs of known-vulnerable systems — keep the counterparty from being selected against.
This sourceFoundational analysis of adverse selection in insurance and the screening/mandatory-pooling responses.
- Adverse-selection mitigation transfers to public health: mandatory enrollment, community rating, and pre-existing-condition rules solve the same structural problem as compulsory third-party motor insurance and as cybersecurity carve-outs of known-vulnerable systems — keep the counterparty from being selected against.
- Screening
- formalized this.
This sourceCanonical model of adverse selection (hidden type, pre-contract) and the screening response in insurance markets, where the uninformed insurer offers a contract menu inducing self-selection by risk type.
- formalized this.
- Signaling
- Distinguishing productive from wasteful signaling is essential for policy design: subsidy or encouragement of the former, constraint or substitution for the latter.
This sourceCanonical model of adverse selection (hidden type, pre-contract) and the screening response in insurance markets, where the uninformed insurer offers a contract menu inducing self-selection by risk type.
- Distinguishing productive from wasteful signaling is essential for policy design: subsidy or encouragement of the former, constraint or substitution for the latter.
Mechanisms¶
Verification¶
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