A note on uniqueness in game-theoretic foundations of the reactive equilibrium

Wanda Mimra and Achim Wambach

Economics Letters, 2016, vol. 141, issue C, 39-43

Abstract: Riley (1979)’s reactive equilibrium concept addresses the problem of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild and Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium’s logic in a dynamic market context with active consumers. We show that the Riley/Rothschild–Stiglitz contracts constitute the unique equilibrium allocation in any subgame perfect Nash equilibrium.

Keywords: Asymmetric information; Competitive insurance market; Contract addition; Reactive equilibrium (search for similar items in EconPapers)
JEL-codes: C72 D82 G22 L10 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176516000197
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:141:y:2016:i:c:p:39-43

DOI: 10.1016/j.econlet.2016.01.016

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().