Question

Define the concept of pooling equilibrium in relation to the insurance market with asymmetric information. Is this equilibrium feasible?

Answer 1

Answer:

An equilibrium in which agents with different characteristics choose the same action. For example :-

In insurance market pooling equilibrium invovles high-risk amd low - risk agents choosing the same insurance contract.

It is feasible

Answer 2

Answer:

Explanation:

With this definition, equilibrium always exists. It coincides with the RS equilibrium when the latter exists, and otherwise represents a "pooling" equilibrium, in which several different types purchase the same policy. A way to describe this game in normal form is to specify a two- part strategy for the incumbents.