An example of non-existence of Riley equilibrium in markets with adverse selection

Eduardo Azevedo and Daniel Gottlieb ()

Games and Economic Behavior, 2019, vol. 116, issue C, 152-157

Abstract: Rothschild and Stiglitz (1976) proposed a model of a competitive market with adverse selection and showed that a (pure strategy) Nash equilibrium may not exist. Among the solutions proposed to deal with this problem, a particularly influential one is the notion of Riley (or reactive) equilibrium (Riley, 1979). We give an example that shows that a Riley equilibrium may not exist if consumers are not ordered.

Keywords: Adverse selection; Equilibrium; Insurance (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:116:y:2019:i:c:p:152-157

DOI: 10.1016/j.geb.2019.04.007

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