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

Eduardo Azevedo and Daniel Gottlieb ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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)
Pages: 6 pages
Date: 2019-07-01
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
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Published in Games and Economic Behavior, 1, July, 2019, 116, pp. 152 - 157. ISSN: 0899-8256

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Journal Article: An example of non-existence of Riley equilibrium in markets with adverse selection (2019)
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