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Erscheinungsjahr: 
2009
Schriftenreihe/Nr.: 
IZA Discussion Papers No. 4125
Verlag: 
Institute for the Study of Labor (IZA), Bonn
Zusammenfassung: 
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.
Schlagwörter: 
Asymmetric information
competition
adverse selection
externality
JEL: 
D82
D86
Persistent Identifier der Erstveröffentlichung: 
Dokumentart: 
Working Paper

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