Efficient Nash Equilibrium under Adverse Selection
AbstractThis paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz . We propose a simple extension of the game-theoretic structure in Hellwig  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 .
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2013-92.
Date of creation: 2013
Date of revision:
Insurance Market; Adverse Selection; Incentive Efficiency;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-COM-2013-12-29 (Industrial Competition)
- NEP-CTA-2013-12-29 (Contract Theory & Applications)
- NEP-GTH-2013-12-29 (Game Theory)
- NEP-MIC-2013-12-29 (Microeconomics)
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