Efficient Nash Equilibrium under Adverse Selection
AbstractThis paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (1976). We propose a simple extension of the game-theoretic structure in Hellwig (1987) under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson (1983).
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 215.
Length: 66 pages
Date of creation: 2011
Date of revision:
Insurance Market; Adverse Selection; Incentive Efficiency;
Other versions of this item:
- Theodoros M. Diasakos & Kostas Koufopoulos, . "Efficient Nash Equilibrium under Adverse Selection," Discussion Paper Series, Department of Economics 201313, Department of Economics, University of St. Andrews.
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-CTA-2011-08-29 (Contract Theory & Applications)
- NEP-GTH-2011-08-29 (Game Theory)
- NEP-IAS-2011-08-29 (Insurance Economics)
- NEP-MIC-2011-08-29 (Microeconomics)
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