A More General Definition of Equilibrium in Markets with Adverse Selection

Anastasios Dosis ()
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Anastasios Dosis: THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique, ESSEC Business School

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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: Adverse selection; equilibrium; existence; efficiency (search for similar items in EconPapers)
Date: 2016-02-19
New Economics Papers: this item is included in nep-cta and nep-mic
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