Efficient Nash Equilibrium under Adverse Selection

Theodoros Diasakos and Kostas Koufopoulos

No 2013-92, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz [28]. We propose a simple extension of the game-theoretic structure in Hellwig [14] under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson [22].

Keywords: Insurance Market; Adverse Selection; Incentive Efficiency (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth and nep-mic
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Citations: View citations in EconPapers (1)

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Working Paper: Efficient Nash Equilibrium under Adverse Selection (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:509

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