Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123365
Authors: 
Mailath, George J.
Nöldeke, Georg
Year of Publication: 
2006
Series/Report no.: 
WWZ Discussion Paper 2006/09
Abstract: 
Extreme adverse selection arises when private information has unbounded support, and market breakdown occurs when no trade is the only equilibrium outcome. We study extreme adverse selection via the limit behavior of a financial market as the support of private information converges to an unbounded support. A necessary and sufficient condition for market breakdown is obtained. If the condition fails, then there exists competitive market behavior that converges to positive levels of trade whenever it is first best to have trade. When the condition fails, no feasible (competitive or not) market behavior converges to positive levels of trade.
Subjects: 
Adverse selection
market breakdown
separation
competitive pricing
JEL: 
D40
D82
D83
G12
G14
Document Type: 
Working Paper

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