Perfect Competition in Markets With Adverse Selection

Eduardo Azevedo and Daniel Gottlieb ()

Econometrica, 2017, vol. 85, 67-105

Abstract: This paper proposes a perfectly competitive model of a market with adverse selection. Prices are determined by zero‐profit conditions, and the set of traded contracts is determined by free entry. Crucially for applications, contract characteristics are endogenously determined, consumers may have multiple dimensions of private information, and an equilibrium always exists. Equilibrium corresponds to the limit of a differentiated products Bertrand game. We apply the model to establish theoretical results on the equilibrium effects of mandates. Mandates can increase efficiency but have unintended consequences. With adverse selection, an insurance mandate reduces the price of low‐coverage policies, which necessarily has indirect effects such as increasing adverse selection on the intensive margin and causing some consumers to purchase less coverage.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (72)

Downloads: (external link)
http://hdl.handle.net/

Related works:
Working Paper: Perfect competition in markets with adverse selection (2017)
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:wly:emetrp:v:85:y:2017:i::p:67-105

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido W. Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().