Hendren, Nathaniel - In: The Geneva Risk and Insurance Review 39 (2014) 2, pp. 176-183
Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that insurance markets may “unravel”. This memo clarifies the distinction between these two notions of unravelling in the context of a binary loss model of insurance. I show that the two concepts are mutually exclusive occurrences....