Randomization with Asymmetric Information

43 Pages Posted: 28 Jun 2004

See all articles by Richard J. Arnott

Richard J. Arnott

Boston College; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: February 1988

Abstract

It is by now well-known that, in the presence of moral hazard or adverse selection, randomization of insurance premia and benefits may be Pareto efficient. This paper: i) provides a typology of the various forms that randomization may take; ii) derives necessary and/or sufficient conditions for the desirability of these various forms of randomization; iii) obtains some simple characterization theorems of the efficient random policies; iv) gives some intuition behind the results; and v) considers why randomization appears to occur less often in practice than the theory suggests it should.

Suggested Citation

Arnott, Richard J. and Stiglitz, Joseph E., Randomization with Asymmetric Information (February 1988). NBER Working Paper No. w2507. Available at SSRN: https://ssrn.com/abstract=425544

Richard J. Arnott (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3674 (Phone)
617-552-1887 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
51
Abstract Views
905
rank
388,676
PlumX Metrics