Equilibrium and Strategic Communication in the Adverse Selection Insurance Model
Shows equilibrium always exists (Rothschild-Stiglitz-Wilson model) when firms enforce policy exclusivity via strategic (profit-maximizing) communication of client purchases. Strategic communication induces two equilibrium types: partial communication of purchase information or non-communication which exhibits a lemon effect (low-risk purchase no insurance). Nonetheless, Jaynes' configuration (Jaynes; Beaudry & Poitevin) allocating both risk-types a low-coverage pooling contract and high-risk supplementary expensive coverage always characterizes equilibrium including Perfect Bayesian Equilibrium in Hellwig's two-stage framework where inter-firm informational asymmetries impose additional "competitive" features. Adverse selection induces salient features of financial markets: Bertrand-Edgeworth competition, latent contracts, strategic exclusivity-policy cancellation tactics, market institutions for sharing information.
|Date of creation:||May 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (203) 432-3576
Fax: (203) 432-5779
Web page: http://www.econ.yale.edu/ddp/
More information through EDIRC
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.:
- Bisin, A. & Guaitoli, D., 1998.
"Moral Hazard and Non-Exclusive Contracts,"
98-24, C.V. Starr Center for Applied Economics, New York University.
- Alberto Bisin & Danilo Guaitoli, 1998. "Moral hazard and non-exclusive contracts," Economics Working Papers 345, Department of Economics and Business, Universitat Pompeu Fabra.
- Bisin, Alberto & Guaitoli, Danilo, 1998. "Moral Hazard and Non-Exclusive Contracts," CEPR Discussion Papers 1987, C.E.P.R. Discussion Papers.
- Beaudry, P. & Poitevin, M., 1990.
"Competitive Screening in Financial Market When Borrowers Can Recontract,"
Cahiers de recherche
9035, Universite de Montreal, Departement de sciences economiques.
- Beaudry, Paul & Poitevin, Michel, 1995. "Competitive Screening in Financial Markets When Borrowers Can Recontract," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 401-23, July.
- Beaudry, P. & Poitevin, M., 1990. "Competitive Screening In Financial Market When Borrowers Can Recontract," Cahiers de recherche 9035, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
- Beaudry, Paul & Poitevin, Michel, 1993. "Signalling and Renegotiation in Contractual Relationships," Econometrica, Econometric Society, vol. 61(4), pages 745-82, July.
- Hellwig, Martin F., 1988. "A note on the specification of interfirm communication in insurance markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 46(1), pages 154-163, October.
- Laurence Ales, 2009.
"Adverse Selection and Non-exclusive Contracts,"
2009 Meeting Papers
854, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:ecl:yaleco:91. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.