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Pooling promises with moral hazard

Author

Listed:
  • Catarina Goulão

    (Toulouse School of Economics (GREMAQ, INRA))

  • Luca Panaccione

    (DEDI and CEIS, Università degli Studi di Roma "Tor Vergata")

Abstract

We extend the framework of Dubey and Geanakoplos (2002) to the case of moral hazard. We analyze the equilibrium properties of the model and we show that equal ex-ante consumers may choose to promise differently, and, as a consequence, choose different actions. This illustrates how the pool of voluntary promises can induce redistribution from consumers with high expected endowment to those with low expected endowment.

Suggested Citation

  • Catarina Goulão & Luca Panaccione, 2015. "Pooling promises with moral hazard," Economics Bulletin, AccessEcon, vol. 35(1), pages 460-465.
    • Handle: RePEc:ebl:ecbull:eb-14-00093
    as

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    References listed on IDEAS

    as
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    4. Pradeep Dubey & John Geanakoplos, 2002. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1529-1570.
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    6. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-1244, September.
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    8. Richard J. Arnott & Joseph E. Stiglitz, 1988. "The Basic Analytics of Moral Hazard," NBER Working Papers 2484, National Bureau of Economic Research, Inc.
    9. Cabreales, Antonio & Calvo-Armengol, Antoni & Jackson, Matthew O., 2003. "La Crema: A Case Study of Mutual Fire Insurance," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 425-458, April.
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    11. Guinnane, Timothy W. & Streb, Jochen, 2011. "Moral Hazard in a Mutual Health Insurance System: German Knappschaften, 1867–1914," The Journal of Economic History, Cambridge University Press, vol. 71(1), pages 70-104, March.
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    More about this item

    Keywords

    moral hazard; pool of promises;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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