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

Stiglitz, Joseph E.; Rothschild, Michael

This paper 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 and suggests that the comforting myth that serious consideration of costs of communication, imperfect knowledge, and the like complicate without informing is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information. We are able to show that not only may a competitive equilibrium not exist, but when equilibria do exist, they may have strange properties.



Also Published In

Quarterly Journal of Economics

More About This Work

Academic Units
Published Here
July 9, 2012