Ask a Nobel Laureate: Can Everyone Benefit from Universal Mandate?

Lecture 2: Public Finance III @ Stanford University

Introduction

Imagine you’re running an insurance company. How would you turn a profit?

There are two obstacles, however.

Adverse Selection: The Need for Universal Mandate

This is a Nobel-worthy question. Professor Stiglitz received the Nobel laureate in Economics in 2001 for “ laying the foundations for the theory of markets with asymmetric information” with George Akerlof and Michael Spence.

Set-up

Equilibrium

If Company Can Tell People Apart…

If Company Can’t Tell People Apart…

Key Insight

This is the original inspiration for universal mandate.

Akerlof Model

Set-up

Death Spiral

A Mandate Can’t Make Everyone Better Off

Key Remarks

Data Analysis: Adverse Selection

Detecting Adverse Selection

Is Adverse Selection a Big Deal?

Studying Non-Existing Markets

What Have We Learned Today?

Theory

Data

Next Time

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store