Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35822
Authors: 
von Siemens, Ferdinand
Kosfeld, Michael
Year of Publication: 
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: 
Document Type: 
Working Paper

Files in This Item:
File
Size
239.65 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.