Document Type
Discussion Paper
Publication Date
5-1-2001
CFDP Number
1305
CFDP Pages
28
Abstract
In our previous paper we built a general equilibrium model of default and punishment in which equilibrium always exists and endogenously determines asset promises, penalties, and sales constraints. In this paper we interpret the endogenous sales constraints as equilibrium signals. By specializing the default penalties and imposing an exclusivity constraint on asset sales, we obtain a perfectly competitive version of the Rothschild-Stiglitz model of insurance. In our model their separating equilibrium always exists even when they say it doesn’t.
Recommended Citation
Dubey, Pradeep and Geanakoplos, John, "Signalling and Default: Rothschild-Stiglitz Reconsidered" (2001). Cowles Foundation Discussion Papers. 1564.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1564