Efficient Nash Equilibrium under Adverse Selection
AbstractThis paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (QJE, 1976). We propose a simple extension of the game-theoretic structure in Hellwig (EER, 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 (ECMA, 1983).
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Bibliographic InfoPaper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 201313.
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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
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Other versions of this item:
- Theodoros M. Diasakos & Kostas Koufopoulos, 2011. "Efficient Nash Equilibrium under Adverse Selection," Carlo Alberto Notebooks 215, Collegio Carlo Alberto.
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-COM-2013-10-18 (Industrial Competition)
- NEP-CTA-2013-10-18 (Contract Theory & Applications)
- NEP-GTH-2013-10-18 (Game Theory)
- NEP-HPE-2013-10-18 (History & Philosophy of Economics)
- NEP-IAS-2013-10-18 (Insurance Economics)
- NEP-MIC-2013-10-18 (Microeconomics)
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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"Adverse Selection in Competitive Search Equilibrium,"
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- Alberto Martin, 2007.
"On Rothschild–Stiglitz as Competitive Pooling,"
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- von Siemens, Ferdinand & Kosfeld, Michael, 2009. "Negative Externalities and Equilibrium Existence in Competitive Markets with Adverse Selection," IZA Discussion Papers 4125, Institute for the Study of Labor (IZA).
- Fuente,Angel de la, 2000. "Mathematical Methods and Models for Economists," Cambridge Books, Cambridge University Press, number 9780521585293, November.
- Pradeep Dubey & John Geanakoplos, 2002. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1529-1570, November.
- Pradeep Dubey & John Geanakoplos, 2001. "Competitive Pooling: Rothschild-Stiglitz Reconsidered," Cowles Foundation Discussion Papers 1346R2, Cowles Foundation for Research in Economics, Yale University, revised Feb 2002.
- Nick Netzer & Florian Scheuer, 2012. "A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection," NBER Working Papers 18471, National Bureau of Economic Research, Inc.
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