Efficient nash equilibrium under adverse selection

Theodoros Diasakos, Kostas Koufopoulos

    Research output: Working paper

    3 Downloads (Pure)

    Abstract

    This 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).
    Original languageEnglish
    PublisherUniversity of St Andrews
    Number of pages65
    Publication statusPublished - Aug 2013

    Publication series

    NameSchool of Economics & Finance Discussion Paper 1313
    No.1313
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X

    Keywords

    • Insurance market
    • Adverse selection
    • Incentive efficiency

    Fingerprint

    Dive into the research topics of 'Efficient nash equilibrium under adverse selection'. Together they form a unique fingerprint.

    Cite this