Adverse Selection in Competitive Search Equilibrium
AbstractWe extend the notion of competitive search equilibrium to an environment with adverse selection. Uninformed principals post contracts to attract informed agents. Agents observe the contracts and apply for one, trading off the probability of matching with a principal against the terms of trade offered by the contract. We characterize equilibria as the solution to a constrained optimization problem and show that in equilibrium principals offers separating contracts to attract different types of agents. We then present a set of examples, including a workplace rat race, insurance against layoff risk, and lemons in asset markets, to illustrate the usefulness of our model.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 139.
Date of creation: 2009
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
- Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
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.:
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"Competitive Search Equilibrium,"
37/1995, Oslo University, Department of Economics.
- 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.
- Alberto Bisin & Piero Gottardi, 2005. "Efficient Competitive Equilibria with Adverse Selection," CESifo Working Paper Series 1504, CESifo Group Munich.
- Alain Delacroix & Shouyong Shi, 2012.
"Pricing and Signaling with Frictions,"
tecipa-455, University of Toronto, Department of Economics.
- Veronica Guerrieri, 2008. "Inefficient Unemployment Dynamics under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 667-708, 08.
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