Creator: Blandin, Adam, Boyd, John H., and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 717 Abstract:
We develop an equilibrium concept in the Debreu (1954) theory of value tradition for a class of adverse selection economies which includes the Spence (1973) signaling and Rothschild-Stiglitz (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.
Keyword: The core, Adverse selection equilibrium, Theory of value, Mutual organization, Signaling, and Insurance Subject (JEL): C62 - Existence and Stability Conditions of Equilibrium, G29 - Financial Institutions and Services: Other, D46 - Value Theory, G22 - Insurance; Insurance Companies; Actuarial Studies, and D82 - Asymmetric and Private Information; Mechanism Design