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Price caps and efficiency in markets with adverse selection

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  • Dosis, Anastasios

Abstract

This article studies general economies with adverse selection in which symmetric companies supply (potentially multiple) plans to privately informed consumers and compete in terms of price schedules. I show that a basic price cap regulation, in which the price caps are endogenously determined by companies, discourages risk selection over efficient allocations, and therefore, equilibrium exists in every economy. Moreover, I demonstrate that in generalisations of Rothschild and Stiglitz (1976) and Wilson (1977) economies, companies earn zero profits in equilibrium, and every equilibrium allocation is efficient.

Suggested Citation

  • Dosis, Anastasios, 2022. "Price caps and efficiency in markets with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:mateco:v:99:y:2022:i:c:s0304406821001506
    DOI: 10.1016/j.jmateco.2021.102591
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    References listed on IDEAS

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