Working Paper

Equilibrium with Mutual Organizations in Adverse Selection Economies

Abstract: An equilibrium concept in the Debreu (1954) theory-of-value tradition is developed for a class of adverse selection economies and applied to the Spence signaling and Rothschild-Stiglitz (1976) adverse selection 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.

Keywords: adverse selection equilibrium; theory of value; insurance; signaling; mutual organization; the core;

JEL Classification: C62; D46; D82; G22; G29;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2015-01-09

Number: 717

Pages: 14 pages