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Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information

1976; Springer Nature (Netherlands); Linguagem: Inglês

10.1007/978-94-015-7957-5_18

0924-5014

Michael Rothschild, Joseph E. Stiglitz,

Economic, financial, and policy analysis

Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge, and the like would, it is believed, complicate without informing. This paper, which analyzes competitive markets in which the characteristics of the commodities exchanged are not fully known to at least one of the parties to the transaction, suggests that this comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information.