Too much trade: A problem of adverse selection

David de Meza, Francesco Reito and Diane Reyniers

MPRA Paper from University Library of Munich, Germany

Abstract: It is shown that uni-dimensional adverse selection may result in market expansion beyond the full-information level. Although bad types tend to drive out good, enough good types may remain to draw in excessive numbers of bad types. As a result, the welfare loss from adverse selection is potentially underestimated. Applications are made to insurance, credit and the used car market.

Keywords: asymmetric information; adverse selection; welfare. (search for similar items in EconPapers)
JEL-codes: D61 D81 D82 (search for similar items in EconPapers)
Date: 2021-03-08
New Economics Papers: this item is included in nep-cwa, nep-ias and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107084

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