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Disclosure, welfare and adverse selection

Kym Pram

Journal of Economic Theory, 2021, vol. 197, issue C

Abstract: I consider a broad class of economic environments where a principal contracts with an agent under adverse selection and the agent can credibly disclose information to the principal. I show that there is an equilibrium that interim Pareto dominates the equilibrium without evidence if and only if the optimal mechanism without evidence assigns the outside option to a set of types satisfying a ‘gains from trade’ property. The results apply to a range of economic environments including insurance markets, financial markets and goods markets with quality-based price discrimination.

Keywords: Disclosure; Adverse selection; Mechanism design; Privacy (search for similar items in EconPapers)
JEL-codes: D4 D42 D8 D82 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jet.2021.105327

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