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An Efficient Mechanism for Competitive Markets with Adverse Selection

Author

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  • Dosis, Anastasios

    (Essec Business School, Economics Department)

Abstract

I construct an efficient mechanism for competitive markets with adverse selection. In the mechanism, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. On the contrary, a private menu concerns only the company that offers it. I show that this simple mechanism reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.

Suggested Citation

  • Dosis, Anastasios, 2016. "An Efficient Mechanism for Competitive Markets with Adverse Selection," ESSEC Working Papers WP1604, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-16004
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    File URL: https://hal-essec.archives-ouvertes.fr/hal-01282772/document
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    References listed on IDEAS

    as
    1. Alberto Bisin & Piero Gottardi, 2006. "Efficient Competitive Equilibria with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 485-516, June.
    2. Asheim, Geir B. & Nilssen, Tore, 1996. "Non-discriminating renegotiation in a competitive insurance market," European Economic Review, Elsevier, vol. 40(9), pages 1717-1736, December.
    3. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dosis, Anastasios, 2016. "A More General Definition of Equilibrium in Markets with Adverse Selection," ESSEC Working Papers WP1607, ESSEC Research Center, ESSEC Business School.
    2. Anastasios Dosis, 2016. "Investment, Adverse Selection and Optimal Redistributive Taxation," Working Papers hal-01285163, HAL.
    3. Anastasios Dosis, 2016. "On Signalling and Screening in Markets with Asymmetric Information," Working Papers hal-01285190, HAL.
    4. Anastasios Dosis, 2016. "A More General Definition of Equilibrium in Markets with Adverse Selection," Working Papers hal-01285188, HAL.
    5. Dosis, Anastasios, 2016. "Investment, Adverse Selection and Optimal Redistributive Taxation," ESSEC Working Papers WP1605, ESSEC Research Center, ESSEC Business School.
    6. Dosis, Anastasios, 2016. "On Signalling and Screening," ESSEC Working Papers WP1608, ESSEC Research Center, ESSEC Business School.

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    More about this item

    Keywords

    Efficiency; Adverse Selection; Competition Mechanism; Design; Existence;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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