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A More General Definition of Equilibrium in Markets with Adverse Selection

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Abstract

I provide a general definition of equilibrium in markets with adverse selection. An equilibrium is defined as a menu of contracts that makes non-negative aggregate profits such that there exists no other menu that includes it as a subset and makes strictly positive aggregate profits. I show that every efficient menu of contracts is also an equilibrium menu of contracts. Furthermore, I characterise a general sufficient condition under which every equilibrium menu of contracts is efficient, restoring that way the First Fundamental Theorem of Welfare Economics. I provide two possible interpretations for this new definition.
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Dates and versions

hal-01285188 , version 1 (09-03-2016)

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  • HAL Id : hal-01285188 , version 1

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Anastasios Dosis. A More General Definition of Equilibrium in Markets with Adverse Selection. 2016. ⟨hal-01285188⟩
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