An Efficient Mechanism for Competitive Markets with Adverse Selection

Anastasios Dosis ()
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Anastasios Dosis: ESSEC Business School and THEMA (UMR 8184) - ESSEC Business School - THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université

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Abstract: I construct an efficient mechanism for competitive markets with adverse selection. In the mechanism, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. On the contrary, a private menu concerns only the company that offers it. I show that this simple mechanism reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.

Keywords: Adverse Selection; Competition; Mechanism Design; Existence; Efficiency (search for similar items in EconPapers)
Date: 2016-02-22
New Economics Papers: this item is included in nep-cta and nep-mic
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