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On Competitive Equilibria with Asymmetric Information

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Author Info
Jérome Pouyet (Ecole Polytechnique)
Bernard Salanié (Columbia University)
Francois Salanié (INRA Toulouse)

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Abstract

Asymmetric information is widely supposed to impair the functioning of markets. We show that the presence of competition may invalidate this intuition. Consider a market in which principals compete for attracting heterogeneous agents by offering contracts. Suppose contracts are exclusive, and there are constant returns to trade. When the agents' types are publicly observed under mild conditions, competitive equilibria are efficient. Efficiency is also obtained when types are privately observed, provided that principals do not directly care about the agents' private information (the private value case). Thus hidden information only matters in competitive markets if it affects common values.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1385&context=bejte
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejtec:v:8:y:2008:i:1:n:13

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Related research
Keywords: competition; information; adverse selection; moral hazard;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bruno Jullien ; Bernard Salanié ; François Salanié, 2000. "Screening Risk-Averse Agents Under Moral Hazard," Working Papers 2000-41, Centre de Recherche en Economie et Statistique. [Downloadable!]
    Other versions:
  2. Alberto Bennardo & Pierre-Andre Chiappori, 2003. "Bertrand and Walras Equilibria Under Moral Hazard," Levine's Working Paper Archive 618897000000000748, David K. Levine. [Downloadable!]
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  3. Marie-Cécile Fagart, 1996. "Concurrence en contrats, anti-sélection et structure d'information," Annales d'Economie et de Statistique, ADRES, issue 43, pages 01, Juillet-S. [Downloadable!]
  4. Bruno Jullien & Bernard Salanié & François Salanié, 2007. "Screening risk-averse agents under moral hazard: single-crossing and the CARA case," Economic Theory, Springer, vol. 30(1), pages 151-169, January. [Downloadable!] (restricted)
  5. Gul, Faruk & Postlewaite, Andrew, 1992. "Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information," Econometrica, Econometric Society, vol. 60(6), pages 1273-92, November. [Downloadable!] (restricted)
  6. Edward Simpson Prescott & Robert M. Townsend, 2006. "Firms as Clubs in Walrasian Markets with Private Information," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 644-671, August. [Downloadable!] (restricted)
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  7. Inderst, Roman, 2001. "Screening in a Matching Market," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 849-68, October.
  8. repec:bep:theadv:v:2:y:2006:i:1:p:1257-1257 is not listed on IDEAS
  9. Richard McLean & Andrew Postlewaite, 2002. "Informational Size and Incentive Compatibility," Econometrica, Econometric Society, vol. 70(6), pages 2421-2453, November. [Downloadable!] (restricted)
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  10. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June. [Downloadable!] (restricted)
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  11. Alberto Bisin & Piero Gottardi, 2006. "Efficient Competitive Equilibria with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 485-516, June. [Downloadable!] (restricted)
    Other versions:
  12. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January. [Downloadable!] (restricted)
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