A More General Definition of Equilibrium in Markets with Adverse Selection

Anastasios Dosis (1, 2)

1 THEMA - Théorie économique, modélisation et applications
2 ESSEC Business School

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.

Mots clés: Adverse selection; equilibrium; existence; efficiency

Domaines: Gestion et management

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