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http://hdl.handle.net/10419/35822
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| Title: | | Negative externalities and equilibrium existence in competitive markets with adverse selection  |
| Authors: | | von Siemens, Ferdinand Kosfeld, Michael |
| Issue Date: | | 2009 |
| Series/Report no.: | | IZA discussion papers 4125 |
| Abstract: | | Rothschild and Stiglitz (1976) show that there need not exist a competitive equilibrium in markets with adverse selection. Building on their framework we demonstrate that externalities between agents - an agent's utility upon accepting a contract depends on the average type attracted by the respective principal - can solve the equilibrium existence problem, even when the size of the externalities is arbitrarily small. Our result highlights the degree of control a principal has over the attractiveness of his contracts as an important feature for equilibrium existence, thereby offering a new perspective on existing theories of competition in markets with adverse selection. |
| Subjects: | | Asymmetric information competition adverse selection externality |
| JEL: | | D82 D86 |
| Persistent Identifier of the first edition: | | urn:nbn:de:101:1-20090513220 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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