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An example of non-existence of Riley equilibrium in markets with adverse selection

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  • Azevedo, Eduardo M.
  • Gottlieb, Daniel

Abstract

Rothschild and Stiglitz [1976] proposed a model of a competitive market with adverse selection and showed that a (pure strategy) Nash equilibrium may not exist. Among the solutions proposed to deal with this problem, a particularly influential one is the notion of Riley (or reactive) equilibrium [Riley, 1979]. We give an example that shows that a Riley equilibrium may not exist if consumers are not ordered.

Suggested Citation

  • Azevedo, Eduardo M. & Gottlieb, Daniel, 2019. "An example of non-existence of Riley equilibrium in markets with adverse selection," LSE Research Online Documents on Economics 102566, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:102566
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    References listed on IDEAS

    as
    1. Eduardo M. Azevedo & Daniel Gottlieb, 2017. "Perfect Competition in Markets With Adverse Selection," Econometrica, Econometric Society, vol. 85, pages 67-105, January.
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    8. 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.
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    More about this item

    Keywords

    adverse selection; equilibrium; insurance;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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