Private Information and Insurance Rejections: A Comment

Andrea Attar, Thomas Mariotti (thomas.mariotti@tse-fr.eu) and François Salanié
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Thomas Mariotti: Toulouse School of Economics, CNRS

No 403, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013).

Keywords: Adverse Selection; Entry Proofness; Market Breakdown; Nonexclusivity6 (search for similar items in EconPapers)
JEL-codes: D43 D8 D82 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-05-03, Revised 2017-05-03
New Economics Papers: this item is included in nep-com, nep-ias, nep-ind and nep-mic
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Working Paper: Private Information and Insurance Rejections: A comment (2017)
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