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On competitive equilibria with asymmetric information

Author

Listed:
  • Jérôme Pouyet

    (X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

  • Bernard Salanie

    (Columbia University [New York])

  • François Salanie

Abstract

Asymmetric information is widely supposed to impair the functioning of markets. We show that the presence of competition may invalidate this intuition. Consider a market in which principals compete for attracting heterogeneous agents by offering contracts. Suppose contracts are exclusive, and there are constant returns to trade. When the agents' types are publicly observed under mild conditions, competitive equilibria are efficient. Efficiency is also obtained when types are privately observed, provided that principals do not directly care about the agents' private information (the private value case). Thus hidden information only matters in competitive markets if it affects common values.

Suggested Citation

  • Jérôme Pouyet & Bernard Salanie & François Salanie, 2008. "On competitive equilibria with asymmetric information," Post-Print halshs-00754317, HAL.
    • Handle: RePEc:hal:journl:halshs-00754317
    DOI: 10.2202/1935-1704.1385
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    Cited by:

    1. Bernard Salanié, 2017. "Equilibrium in Insurance Markets: An Empiricist’s View," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(1), pages 1-14, March.
    2. de Pinto, Marco & Goerke, Laszlo & Palermo, Alberto, 2023. "On the welfare effects of adverse selection in oligopolistic markets," Games and Economic Behavior, Elsevier, vol. 138(C), pages 22-41.
    3. Bannier, Christina E. & Feess, Eberhard & Packham, Natalie, 2014. "Incentive schemes, private information and the double-edged role of competition for agents," CFS Working Paper Series 475, Center for Financial Studies (CFS).
    4. Federico Etro & Michela Cella, 2013. "Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 488-512, September.
    5. Li, Anqi & Xing, Yiqing, 2020. "Intermediated implementation," European Economic Review, Elsevier, vol. 123(C).

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