Title

Signalling and Default: Rothschild-Stiglitz Reconsidered

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.

This document is currently not available here.

Share

COinS