Crying over Spilled Milk: The Arnott-Stiglitz Moral Hazard Model
7 Pages Posted: 27 Dec 2014 Last revised: 22 Jan 2016
Date Written: December 26, 2014
Abstract
This paper points out two fundamental mistakes committed by Arnott and Stiglitz: their formulation of expected utility is a single point, and their introduction of the effort parameter is detrimental. The first mistake destroys their hope to retrieve an indifference curve. The second mistake makes their model look ugly. This paper also proves that their fabricated conclusion can be easily overturned.
Keywords: Insurance, Moral Hazard
JEL Classification: G22
Suggested Citation: Suggested Citation
Choi, Hak, Crying over Spilled Milk: The Arnott-Stiglitz Moral Hazard Model (December 26, 2014). Available at SSRN: https://ssrn.com/abstract=2541206 or http://dx.doi.org/10.2139/ssrn.2541206
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