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A More General Definition of Equilibrium in Markets with Adverse Selection

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  • Anastasios Dosis

    (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique, ESSEC Business School)

Abstract

I provide a general definition of equilibrium in markets with adverse selection. An equilibrium is defined as a menu of contracts that makes non-negative aggregate profits such that there exists no other menu that includes it as a subset and makes strictly positive aggregate profits. I show that every efficient menu of contracts is also an equilibrium menu of contracts. Furthermore, I characterise a general sufficient condition under which every equilibrium menu of contracts is efficient, restoring that way the First Fundamental Theorem of Welfare Economics. I provide two possible interpretations for this new definition.

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  • Anastasios Dosis, 2016. "A More General Definition of Equilibrium in Markets with Adverse Selection," Working Papers hal-01285188, HAL.
    • Handle: RePEc:hal:wpaper:hal-01285188
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-01285188
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    References listed on IDEAS

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    1. Hajime Miyazaki, 1977. "The Rat Race and Internal Labor Markets," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 394-418, Autumn.
    2. Dosis, Anastasios, 2016. "An Efficient Mechanism for Competitive Markets with Adverse Selection," ESSEC Working Papers WP1604, ESSEC Research Center, ESSEC Business School.
    3. Nick Netzer & Florian Scheuer, 2014. "A Game Theoretic Foundation Of Competitive Equilibria With Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 399-422, May.
    4. Theodoros M. Diasakos & Kostas Koufopoulos, 2011. "Efficient Nash Equilibrium under Adverse Selection," Carlo Alberto Notebooks 215, Collegio Carlo Alberto.
    5. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    6. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325.
    7. Wanda Mimra & Achim Wambach, 2011. "A Game-Theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection," CESifo Working Paper Series 3412, CESifo.
    8. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
    9. Anastasios Dosis, 2016. "An Efficient Mechanism for Competitive Markets with Adverse Selection," Working Papers hal-01282772, HAL.
    10. Anastasios Dosis, 2016. "Bertand Competition and the Existence of Pure Strategy Nash Equilibrium in Markets with Adverse Selection," Working Papers hal-01285185, HAL.
    11. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    12. Dosis, Anastasios, 2016. "Bertand Competition and the Existence of Pure Strategy Nash Equilibrium in Markets with Adverse Selection," ESSEC Working Papers WP1606, ESSEC Research Center, ESSEC Business School.
    13. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Adverse selection; equilibrium; existence; efficiency;
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