A Game-theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection
Title | A Game-theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection PDF eBook |
Author | Wanda Mimra |
Publisher | |
Pages | 26 |
Release | 2011 |
Genre | |
ISBN |
A Game-theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selecetion
Title | A Game-theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selecetion PDF eBook |
Author | Wanda Mimra |
Publisher | |
Pages | 26 |
Release | 2011 |
Genre | Finance |
ISBN |
A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection
Title | A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection PDF eBook |
Author | Nick Netzer |
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Pages | |
Release | 2012 |
Genre | Adverse selection (Insurance) |
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We construct a fully specified extensive form game that captures competitive markets with adverse selection. In particular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists and that, in fact, when withdrawal is costless, the set of subgame perfect equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that exist both when withdrawal costs are zero and when they are arbitrarily small but strictly positive. We show that the Miyazaki-Wilson contracts are the unique robust equilibrium outcome of our game. This outcome is always constrained efficient and involves cross-subsidization from low to high risk agents that is increasing in the share of low risks in the population under weak conditions on risk preferences.
Equilibrium in Competitive Insurance Markets with Ex Ante Adverse Selection and Ex Post Moral Hazard
Title | Equilibrium in Competitive Insurance Markets with Ex Ante Adverse Selection and Ex Post Moral Hazard PDF eBook |
Author | William Jack |
Publisher | |
Pages | 48 |
Release | 1998 |
Genre | Equilibrium (Economics) |
ISBN |
A Note on Uniqueness in Game-theoretic Foundations of the Reactive Equilibrium
Title | A Note on Uniqueness in Game-theoretic Foundations of the Reactive Equilibrium PDF eBook |
Author | Wanda Mimra |
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Pages | |
Release | 2014 |
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Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium's logic in a dynamic market context with active consumers. We show that the Riley/Rothschild-Stiglitz contracts constitute the unique equilibrium allocation in any pure strategy subgame perfect Nash equilibrium.
Efficient Nash Equilibrium Under Adverse Selection
Title | Efficient Nash Equilibrium Under Adverse Selection PDF eBook |
Author | Theodoros Diasakos |
Publisher | |
Pages | 0 |
Release | 2017 |
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This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz. We propose a simple extension of the game-theoretic structure in Hellwig under which Nash-type strategic interaction between the informed customers and the uninformed fi rms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson.
Existence of Equilibria in Competitive Insurance Markets
Title | Existence of Equilibria in Competitive Insurance Markets PDF eBook |
Author | Peter S. Faynzilberg |
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Pages | |
Release | 2006 |
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Under the conditions conjectured by Rothschild and Stiglitz (1976)as leading to market failure, we demonstrate the existence of a uniqueequilibrium in a risk-sharing economy with adverse selection. This equilibrium may be separating or partially pooling: in an economy withthree types, for instance, the low- and the medium-risk buyer segmentsmay be offered the same insurance policy.In equilibrium, buyers' indirect utility decreases with their propensityfor accident. When low-risk buyers are prevalent, sellers subsidizetheir operations across segments: they derive a positive profit in thelow-risk segment and incur a loss of equal magnitude in the rest ofthe economy. This leaves high-risk buyers better off than under thefirst-best policy they purchase when sellers are perfectly informed.In contrast to the putative equilibrium of the Rothschild-Stiglitzmodel, the second-best equilibrium depends on the structure of thebuyer population and converges to the first-best of the correspondinghomogeneous population as low- risk buyers become increasingly prevalentin the economy.