An example of non-existence of Riley equilibrium in markets with adverse selection

Eduardo M. Azevedo; Daniel Gottlieb

doi:10.1016/j.geb.2019.04.007

An example of non-existence of Riley equilibrium in markets with adverse selection

Eduardo M. Azevedo, Daniel Gottlieb

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1 Scopus citations

Abstract

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 a Riley equilibrium may not exist if consumers are not ordered.

Original language	English
Pages (from-to)	152-157
Number of pages	6
Journal	Games and Economic Behavior
Volume	116
DOIs	https://doi.org/10.1016/j.geb.2019.04.007
State	Published - 1 Jul 2019
Externally published	Yes

Keywords

Adverse selection
Equilibrium
Insurance

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.geb.2019.04.007

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abstract = "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 a Riley equilibrium may not exist if consumers are not ordered.",

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AB - 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 a Riley equilibrium may not exist if consumers are not ordered.

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KW - Insurance

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An example of non-existence of Riley equilibrium in markets with adverse selection

Abstract

Keywords

ASJC Scopus subject areas

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