Not logged in.

Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title A game theoretic foundation of competitive equilibria with adverse selection
Organization Unit
  • Nick Netzer
  • Florian Scheuer
  • English
Institution National Bureau of Economic Research
Series Name NBER working paper series
Number 18471
Number of Pages 35
Date 2012
Abstract Text We construct a fully specified extensive form game that aptures competitive markets with adverse selection. In articular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists and that, in fact, when withdrawal is costless, the set of subgame perfect equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that exist both when withdrawal costs are zero and when they are arbitrarily small but strictly positive. We show that the Miyazaki-Wilson contracts are the unique robust equilibrium outcome of our game. This outcome is always constrained efficient and involves cross-subsidization from low to high risk agents that is increasing in the share of low risks in the population under weak conditions on risk preferences.
Free access at Official URL
Official URL
PDF File Download from ZORA
Export BibTeX