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An Efficient Mechanism for Competitive Markets with Adverse Selection

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  • Anastasios Dosis

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

Abstract

I construct an efficient mechanism for competitive markets with adverse selection. In the mechanism, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. On the contrary, a private menu concerns only the company that offers it. I show that this simple mechanism reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.

Suggested Citation

  • Anastasios Dosis, 2016. "An Efficient Mechanism for Competitive Markets with Adverse Selection," Working Papers hal-01282772, HAL.
  • Handle: RePEc:hal:wpaper:hal-01282772
    Note: View the original document on HAL open archive server: https://hal-essec.archives-ouvertes.fr/hal-01282772
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    References listed on IDEAS

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    Keywords

    Efficiency; Adverse Selection; Competition; Mechanism Design; Existence;
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