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

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  • Azevedo, Eduardo M.
  • Gottlieb, Daniel

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.

Suggested Citation

  • Azevedo, Eduardo M. & Gottlieb, Daniel, 2019. "An example of non-existence of Riley equilibrium in markets with adverse selection," Games and Economic Behavior, Elsevier, vol. 116(C), pages 152-157.
    • Handle: RePEc:eee:gamebe:v:116:y:2019:i:c:p:152-157
    DOI: 10.1016/j.geb.2019.04.007
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    More about this item

    Keywords

    Adverse selection; Equilibrium; Insurance;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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