Equilibrium with mutual organizations in adverse selection economies

Adam Blandin, John H. Boyd, Edward C. Prescott

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

We develop an equilibrium concept in the Debreu (Proc Natl Acad Sci USA 40(7):588–592, 1954) theory of value tradition for a class of adverse selection economies which includes the Spence (Q J Econ 87(3):355–374, 1973) signaling and Rothschild–Stiglitz (Q J Econ 90(4):629–649, 1976) insurance environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.

Original languageEnglish (US)
Pages (from-to)3-13
Number of pages11
JournalEconomic Theory
Volume62
Issue number1-2
DOIs
StatePublished - Jun 1 2016

Keywords

  • Adverse selection equilibrium
  • Insurance
  • Mutual organization
  • Signaling
  • The core
  • Theory of value

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