Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103461
Authors: 
Mimra, Wanda
Wambach, Achim
Year of Publication: 
2014
Series/Report no.: 
CFS Working Paper Series 483
Abstract: 
Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium's logic in a dynamic market context with active consumers. We show that the Riley/Rothschild-Stiglitz contracts constitute the unique equilibrium allocation in any pure strategy subgame perfect Nash equilibrium.
Subjects: 
asymmetric information
competitive insurance market
contract addition
reactive equilibrium
JEL: 
C72
D82
G22
L10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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