Consider the Rothschild Stiglitz model of insurance markets. a. Illustrate the equilibrium we would expect in the insura
Posted: Fri Jul 01, 2022 8:13 am
Consider the Rothschild Stiglitz model of insurance markets.
a. Illustrate the equilibrium we would expect in the insurance market if there were no information asymmetries. In other words, if the insurance company can observe each person’s health status.
b. Now illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” pooling equilibrium fails to exist.
c. Illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” separating equilibrium exists.
d. Now illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” separating equilibrium fails to exist.
e. What is the intuition behind the difference between your answer to part a) and your answer to part c)?
a. Illustrate the equilibrium we would expect in the insurance market if there were no information asymmetries. In other words, if the insurance company can observe each person’s health status.
b. Now illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” pooling equilibrium fails to exist.
c. Illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” separating equilibrium exists.
d. Now illustrate graphically and describe in words a situation where a “Rothschild and Stiglitz” separating equilibrium fails to exist.
e. What is the intuition behind the difference between your answer to part a) and your answer to part c)?