We decentralize incentive efficient allocations in large adverse selection economies by introducing a Walrasian market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, while firms sell tickets and...

The notion of uncertain delivery is extended to study exchange economies in which agents have different abilities to distinguish between goods (for example a car in good condition versus a car in bad condition). In this setting, it is useful to distinguish goods not only by their physical...

In this paper the problem of optimal derivative design, profit maximization and risk minimization under adverse selection when multiple agencies compete for the business of a continuum of heterogenous agents is studied. In contrast with the principal-agent models that are extended within, here...

In this paper the problem of optimal derivative design, profit maximization and risk minimization under adverse selection when multiple agencies compete for the business of a continuum of heterogenous agents is studied. In contrast with the principal-agent models that are extended within, here...

Azevedo and Gottlieb [2017] (AG) define a notion of equilibrium that always exists in the Rothschild and Stiglitz [1976] (RS) model of competitive insurance markets, provided costs are bounded. However, equilibrium predictions are sensitive to assumptions made about the upper bound of cost:...

Abstract We develop a tractable model of competitive insurance markets with a continuum of types and exogenous restrictions on the set of allowed contracts. Our model nests, as special cases, the market for lemons of Akerlof (1970) and the unrestricted contracts setting of Rothschild and...

Short lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities and a faster arbitrageurs' response to these...

Credit-rationing model similar to Stiglitz and Weiss [1981] is combined with the information externality model of Lang and Nakamura [1993] to examine the properties of mortgage markets characterized by both adverse selection and information externalities. In a credit-rationing model, additional...

I formalise a rather stylised insurance market with adverse selection as a standard duopoly. I formally specify demand functions and profits and I prove that a Nash equilibrium in pure strategies exists if and only if the well-known Rothschild-Stiglitz allocation is efficient

This paper looks for evidence of adverse selection in the relationship between primary insurers and reinsurers. We test the implications of a model in which informational asymmetry – and therefore, its negative consequences – decline over time. Our tests involve a data panel consisting of...