TY - UNPB
T1 - Efficient nash equilibrium under adverse selection
AU - Diasakos, Theodoros
AU - Koufopoulos, Kostas
PY - 2013/8
Y1 - 2013/8
N2 - 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).
AB - 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).
KW - Insurance market
KW - Adverse selection
KW - Incentive efficiency
UR - http://ideas.repec.org/p/san/wpecon/1313.html
UR - http://www.st-andrews.ac.uk/economics/repecfiles/4/1313.pdf
UR - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1944825
UR - http://www.carloalberto.org/assets/working-papers/no.215.pdf
M3 - Working paper
T3 - School of Economics & Finance Discussion Paper 1313
BT - Efficient nash equilibrium under adverse selection
PB - University of St Andrews
ER -