A More General Definition of Equilibrium in Markets with Adverse Selection

Anastasios Dosis
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Anastasios Dosis: Essec Business School, Economics Department

No WP1607, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: I provide a general definition of equilibrium in markets with adverse selection. An equilibrium is defined as a menu of contracts that makes non-negative aggregate profits such that there exists no other menu that includes it as a subset and makes strictly positive aggregate profits. I show that every efficient menu of contracts is also an equilibrium menu of contracts. Furthermore, I characterise a general sufficient condition under which every equilibrium menu of contracts is efficient, restoring that way the First Fundamental Theorem of Welfare Economics. I provide two possible interpretations for this new definition.

Keywords: existence; efficiency; Adverse selection; equilibrium (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2016-02-19
New Economics Papers: this item is included in nep-pr~ and nep-mic
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