Equilibrium with Mutual Organizations in Adverse Selection Economies

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Creator Series Issue number
  • 717
Date Created
  • 2015-09-01
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.

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  • Federal Reserve Bank of Minneapolis. Research Department
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  • Federal Reserve Bank of Minneapolis
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