An Efficient Mechanism for Competitive Markets with Adverse Selection

Anastasios Dosis (1)

1 ESSEC Business School and THEMA (UMR 8184)

I construct an efficient mechanism for competitive markets with adverse selection. In the mechanism, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. On the contrary, a private menu concerns only the company that offers it. I show that this simple mechanism reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.

Mots clés: Adverse Selection; Competition; Mechanism Design; Existence; Efficiency

Domaines: Economies et finances

Anastasios Dosis. An Efficient Mechanism for Competitive Markets with Adverse Selection. 2016. ⟨hal-01282772⟩