Azevedo, Eduardo M. and Gottlieb, Daniel ORCID: 0000-0002-0555-6185 (2017) Perfect competition in markets with adverse selection. Econometrica, 85 (1). 67 - 105. ISSN 0012-9682
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Abstract
This paper proposes a perfectly competitive model of a market with adverse selection. Prices are determined by zero-profit conditions, and the set of traded contracts is determined by free entry. Crucially for applications, contract characteristics are endogenously determined, consumers may have multiple dimensions of private information, and an equilibrium always exists. Equilibrium corresponds to the limit of a differentiated products Bertrand game. We apply the model to establish theoretical results on the equilibrium effects of mandates. Mandates can increase efficiency but have unintended consequences. With adverse selection, an insurance mandate reduces the price of low-coverage policies, which necessarily has indirect effects such as increasing adverse selection on the intensive margin and causing some consumers to purchase less coverage.
Item Type: | Article |
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Official URL: | https://www.econometricsociety.org/publications/ec... |
Additional Information: | © 2017 The Econometric Society |
Divisions: | Management |
Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
Date Deposited: | 26 Oct 2019 12:00 |
Last Modified: | 14 Sep 2024 08:01 |
URI: | http://eprints.lse.ac.uk/id/eprint/102228 |
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