Abstract
There are many situations in which a party will obtain a reward or, more generally, will be treated in a way that is affected by information that he reveals, assuming that the information can be verified as true. This is ordinarily the case in goods markets; a seller (say, of a used automobile) will expect to receive a higher price if he can establish favorable facts to the buyer (for example, by showing records proving that the automobile has been regularly serviced) and to receive a lower price were he to reveal unfavorable facts. A related phenomenon occurs in insurance markets; a buyer (for example, of life insurance) will pay a lower premium if he can demonstrate (perhaps with medical records) that his risk is low. Similarly, the evidence that a person (an accident victim; a criminal defendant) substantiates before a court will influence the legal outcome ( a money judgment for the accident victim; a criminal sanction for the defendant); the demonstrable reasons that a person offers for his actions (breaking a lunch engagement) in normal social intercourse will affect the attitude of others toward him. The variety of situations in which the verifiable information that a party conveys will matter to his treatment is plainly large. Such situations will be examined here in a model in which the following assumptions are made. First, some parties possess verifiable information - they can prove that the information is valid - while other parties do not. (Some sellers of automobiles have service records and others do not; some purchasers of life insurance have reasonably complete medical records, others do not; some criminal defendants can bring forward good alibi witnesses, others cannot.) Second, the reward (hereafter, most broadly interpreted) that a party receives if he reveals verifiable information is influenced by that information. Third, the reward that a party receives if he does not reveal verifiable information - either because he does not possess it or because he possesses it but chooses to keep silent - is determined by the characteristics of the entire group of parties who do not reveal verifiable information or by rational inferences that can be drawn about them.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: The Geneva Papers on Risk and Insurance - Issues and Practice
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.