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http://hdl.handle.net/1893/27633| Appears in Collections: | Economics Journal Articles |
| Peer Review Status: | Refereed |
| Title: | (Neutrally) Optimal Mechanism under Adverse Selection: The canonical insurance problem |
| Author(s): | Diasakos, Theodoros M Koufopoulos, Kostas |
| Contact Email: | theodoros.diasakos@stir.ac.uk |
| Keywords: | Economics and Econometrics Finance |
| Issue Date: | 30-Sep-2018 |
| Date Deposited: | 16-Aug-2018 |
| Citation: | Diasakos TM & Koufopoulos K (2018) (Neutrally) Optimal Mechanism under Adverse Selection: The canonical insurance problem. Games and Economic Behavior, 111, pp. 159-186. https://doi.org/10.1016/j.geb.2018.04.007 |
| Abstract: | This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (1976). We extend the three-stage game in Hellwig (1987) by allowing firms to endogenously choose whether or not to pre-commit on their contractual offers (menus). We show how this mechanism can deliver the Miyazaki–Wilson–Spence allocation as the unique perfect-Bayesian equilibrium. This allocation is the unique incentive-efficient and individually-rational maximizer of the utility of the most profitable type. In fact, given that the informed player has only two types, it is the unique core allocation and thus the unique neutral optimum in the sense of Myerson (1983). |
| DOI Link: | 10.1016/j.geb.2018.04.007 |
| Rights: | This item has been embargoed for a period. During the embargo please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study. Accepted refereed manuscript of: Diasakos TM & Koufopoulos K (2018) (Neutrally) Optimal Mechanism under Adverse Selection: The canonical insurance problem, Games and Economic Behavior, 111, pp. 159-186. DOI: 10.1016/j.geb.2018.04.007 © 2018, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Licence URL(s): | http://creativecommons.org/licenses/by-nc-nd/4.0/ |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| YGAME2862main.pdf | Fulltext - Accepted Version | 593.34 kB | Adobe PDF | View/Open |
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