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

Eduardo M. Azevedo, Daniel Gottlieb

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
Pages (from-to)152-157
Number of pages6
JournalGames and Economic Behavior
Volume116
DOIs
StatePublished - 1 Jul 2019
Externally publishedYes

Keywords

  • Adverse selection
  • Equilibrium
  • Insurance

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