Equilibrium in Search Models with Adverse Selection PDF Download
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Author: James W. Albrecht
Publisher:
ISBN:
Category :
Languages : en
Pages : 13
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Author: James W. Albrecht
Publisher:
ISBN:
Category :
Languages : en
Pages : 13
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Author: Veronica Guerrieri
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ISBN:
Category : Search theory
Languages : en
Pages : 37
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We extend the concept of competitive search equilibrium to environments with private information, and in particular adverse selection. Principals (e.g. employers or agents who want to buy assets) post contracts, which we model as revelation mechanisms. Agents (e.g. workers, or asset holders) have private information about the potential gains from trade. Agents observe the posted contracts and decide where to apply, trading off the contracts' terms of trade against the probability of matching, which depends in general on the principals' capacity constraints and market search frictions. We characterize equilibrium as the solution to a constrained optimization problem, and prove that principals offer separating contracts to attract different types of agents. We then present a series of applications, including models of signaling, insurance, and lemons. These illustrate the usefulness and generality of the approach, and serve to contrast our findings with standard results in both the contract and search literatures.
Author: Colin Rose
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Category : Equilibrium (Economics)
Languages : en
Pages : 32
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Author:
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Category :
Languages : en
Pages :
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Author: Charles Wilson
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Category :
Languages : en
Pages :
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Author: Eduardo M. Azevedo
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Category :
Languages : en
Pages : 7
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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, when consumers are not ordered along a single dimension of heterogeneity in the typical sense of higher types being willing to pay more for additional insurance, a Riley equilibrium may also not exist.
Author: Theodoros M. Diasakos
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ISBN:
Category : Adverse selection (Insurance)
Languages : en
Pages : 65
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Author: Tuomas Takalo
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ISBN: 9789524620406
Category :
Languages : en
Pages : 45
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We study a financial market adverse selection model where all agents are endowed with initial wealth and choose to invest as entrepreneurs or financiers, or not to invest. We show that often a lack of outside finance leads to the emergence of financial markets where availability of outside finance leads to autarky. We find that i) there exist Pareto-efficient and inefficient equilibria; ii) adverse selection has more severe consequences for poorer economies; iii) increasing initial wealth may cause a shift from Pareto-efficient to inefficient equilibrium; iv) increasing the proportion of agents with positive NPV projects causes a shift from inefficient to efficient equilibrium; v) equilibrium financial contracts are either equity-like or 'pure' debt contracts; vi) agents with negative (positive) NPV projects earn rents only in (non- )wealth-constrained economies; vii) agents earn rents only when employing pure debt contracts; and viii) removing storage technology destroys the only Pareto-efficient equilibrium in non-wealth-constrained economies. Our model enables analysis of various policies concerning financial stability, the need for sophisticated financial institutions, development aid, and the promotion of entrepreneurship.
Author: Anastasios Dosis
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ISBN:
Category :
Languages : en
Pages :
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Author: Concordia University. Department of Economics
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ISBN:
Category :
Languages : en
Pages : 72
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