An Example of NonExistence of Riley Equilibrium in Markets with Adverse Selection


 Harold Sherman
 2 years ago
 Views:
Transcription
1 An Example of NonExistence of Riley Equilibrium in Markets with Adverse Selection Eduardo M Azevedo Daniel Gottlieb This version: February 7, 06 First version: January, 06 Rothschild and Stiglitz [976] proposed a model of a competitive market with adverse selection and showed that a (pure strategy) Nash equilibrium may not exist Among the solutions proposed to deal with this problem, a particularly influential one is the notion of Riley (or reactive) equilibrium [Riley, 979] We give an example that shows that, when consumers are not ordered along a single dimension of heterogeneity, a Riley equilibrium may also not exist Wharton, Olin Business School at the Washington University in St Louis,
2 Rothschild and Stiglitz [976] proposed a model of a competitive market with adverse selection where firms compete by offering insurance contracts to consumers They showed that a (pure strategy) Nash equilibrium may not exist Among the solutions proposed to deal with this problem, a particularly influential one is the notion of reactive equilibrium [Riley, 979] also known as Riley equilibrium In a Riley equilibrium, before introducing a new contract, each firm anticipates how other firms would react to it If, in response to the new contract, another firm would introduce a profitable contract that makes the original firm lose money, it chooses not to introduce it Additionally, this new profitable contract cannot be made unprofitable by the introduction of another contract Riley [979] showedthattheuniquereactiveequilibriuminthemodelofrothschildand Stiglitz is the least costly separating equilibrium Engers and Fernandez [987] generalized Riley s result, while maintaining the assumption of onedimensional, ordered types However, subsequent empirical and theoretical work has shown that consumers are often heterogeneous in more than one dimension, and that this is important for various policy questions In this note, we show that a Riley equilibrium may not exist We give a natural example of a market with no Riley equilibria The set of contracts is simple, as firms offer only two contracts, but consumer types are not ordered along a single dimension, unlike the case considered by Riley and Engers and Fernandez This suggests that, to obtain predictions in more realistic environments, other solution concepts are necessary Preliminaries We start with the formal definition of a Riley equilibrium based on Engers and Fernandez s [987] generalizationofriley [979] 3 The model studies the interaction between uninformed firms who sell different contracts to privatelyinformed consumers Firms compete by offering menus of contracts to consumers Let X = {x,,x C } be the finite set of possible contracts Apricevectorp = {p,,p C } specifies a price for each contract Consider a situation where firms offer price vectors p,,p N,andletP = {p,,p N } be the set of price vectors being offered In order to determine whether this is a Riley equilibrium, we must consider what happens when an entrant offers a new price vector p 0 As Rochet and Stole [003] point out, there is a close relationship between models with multidimensional types and those with unordered types For example, any model with finitely many multidimensional types can be written as a model with onedimensional types However, the resulting onedimension type space is typically not ordered See, for example, Finkelstein and McGarry [006], Cohen and Einav [007], Fang et al [008] Multidimensional heterogeneity is discussed in detail by Chiappori and Salanié [000], Smart [000], Heckman [004], Veiga and Weyl [04], Araujo and Moreira [00], Azevedo and Gottlieb [04] 3 See also Handel et al [05]
3 We write p 0 P to denote the new set of price vectors that is obtained by including vector p 0 in P, ie,p 0 P = {p 0, p,,p N } For any p P, let (p, P) denote the perunit profit obtained by a firm that offers price vector p when the set of all offered price vectors corresponds to P Inapplications, is obtained by specifying preferences and the private information of informed consumers (as we will do in Section ) Definition ARileyequilibriumisasetofpricevectorsP with the following properties: Firms do not incur losses: (p, P) 0 for all p P For any new price vector p A / P that gives a positive profit (p A, p A P) > 0, there exists another price vector p B / P such that: p A incurs losses when p B is included: (p A, p B p A P) < 0, p B does not incur losses when any new price vector p C is included (p B is safe ): (p B, p C p B p A P) 0 Definition states that a set of price vectors is a Riley equilibrium if for any new contract that would generate a profit to some firm A, thereexistsan entrant B that would make A s contract unprofitable Moreover, this entry by firm B is safe in the sense that there is no additional entry by another firm that would make firm B lose money Notice that when there are no safe prices, Riley equilibria coincide with (pure strategy) Nash equilibria An Example of nonexistence of Riley Equilibria We now show that Riley equilibria may not exist when types are not ordered Our example is based on a variation of the Hoteling model Consumers are uniformly distributed in the unit interval [0, ] There are two possible contracts: X = {0, } A type consumer who buys contract x at price p gets utility K (x ) p,
4 where >0 parameterizes the similarity between contracts (it is the inverse of the transportation cost in the standard Hoteling model) and K is large enough to ensure that the market is served Selling contract x {0, } to type costs Notice that the types in the extreme points have the strongest preference for one of the contracts and are the most costly to serve Types in the middle have the weakest preference between contracts and are the cheapest consumers The type who is indifferent between both contracts is determined by: 3 K p 0 = K ( ) p ) = (p 0 p ) Then, because types are uniformly distributed, the demand for contract 0 is: 8 >< D 0 (p 0,p ) >: 0 if + (p p 0 ) < 0 +(p p 0 ) if 0 apple + (p p 0 ) apple if + (p p 0 ) > By symmetry, the demand for contract is analogous We say that a price vector (p 0,p ) yields an interior allocation if 0 <D(p 0,p ) < Because both contracts cost the same and willingness to pay is symmetrically distributed, we can define C(q) as the expected perunit cost of selling to the mass q of consumers with the highest willingness to pay for each contract: C(q) = q 0 q d = q 3 q + 4 For interior allocations, the perunit profit of selling x = i at price p i equals (p i p i )+ (p i p i ) p i C(D(p i,p i )) = p i () The perunit profit function can be easily calculated from equation () 4 4 To do so, let p i (P) min{ p 0 :( p 0, p ) P} denote the lowest price being charged for contract i {0, } The perunit profit of selling contract i is 8 < i(p i, P) : 0 if p i 6= p i (P) or p i (P) p i (P) p i (p i p i)+ (p i p i) if p i = p i (P) and p i (P) p i (P) < p i if p i = p i (P) and p i (P) p i (P) The first line says that the firm gets zero profits if some other firm is charging a higher price, or if no consumer
5 It is helpful to consider the existence of Nash equilibria before turning to Riley equilibria Lemma shows that Nash equilibria do not exist when horizontal differentiation between contracts is low (ie, is high): Lemma Let > Then,no(purestrategy)Nashequilibriumexists Proof In any (pure strategy) Nash equilibrium, profits on all contracts are zero Let (p 0,p ) denote the lowest prices charged for each contract With interior allocations, setting perunit profits () tozeroforbothcontracts,yieldsp 0 = p as long as 6= 6 Thus, there are three possible Nash equilibria: an interior, symmetric Nash equilibrium (p 0 = p )andtwo asymmetric Nash equilibria at the boundary (one where all consumers buy x =0and another where they all buy x =) In the symmetric candidate equilibrium, we must have p 0 = p = C( )= In the asymmetric candidate equilibria, zero profits gives: p i = C() =, where i {0, } denotes the only contract being sold Therefore, in all candidate equilibria, all traded contracts have price We now verify that these are not Nash equilibria because firms can profit by offering a contract at a price slightly below and attracting a large mass of lowcost consumers In the symmetric candidate equilibrium, the perunit profit from selling a contract at price p< is p + p p The derivative of this expression with respect to p equals 4 p, which, evaluated at p =,becomes < 0 () > is buying contract i The second line specifies the perunit profits if the allocation is interior, whereas the third line specifies profits when all consumers buy contract i Total perunit profits are the sum of perunit profits from both contracts: ((p,p ), P) 0 (p 0, P)+ (p, P)
6 Therefore, a small reduction in price below yields positive profits Next, consider the asymmetric candidate equilibrium where only contract x = i is sold at price p i = 5 By the previous calculations, selling the other contract (x 6= i) at a price slightly below yields positive profits Thus, no (pure strategy) Nash equilibrium exists when > We now show that no prices are safe when >4, sothatthesetofrileyequilibria coincides with the set of Nash equilibria Lemma Let >4 Then,asetofpricevectorsP is a Riley equilibrium if and only if it is a (pure strategy) Nash equilibrium Proof Fix a set of price vectors p A P,andconsideranewpricevectorp B that gives positive perunit profits when added to p A P For this vector to yield positive profits, some consumers must prefer to buy a contract from the entrant offering p B Without loss of generality, let x =0denote this contract (the argument is symmetric for x =) Now, suppose a new entrant offers p C =(p B 0 +, 0) Withtheadditionofp C, the firm offering p B obtains perunit profits: (p B, p C p B p A P)=p B 0 +p B 0 + p B 0 We claim that this expression is negative for any p B 0 To see this, rewrite it as 0 < p B 0 +( ) p B 0 +, which is true because, when >4, the expression on the RHS is a quadratic equation with no real roots Therefore, no profitable price vector p B is safe and Riley equilibria coincide with (pure strategy) Nash equilibria Combining Lemmas and gives our main result: Proposition No Riley equilibrium exists when > References Aloisio Araujo and Humberto Moreira Adverse selection problems without the spence mirrlees condition Journal of Economic Theory, 45(3):3 4, 00 Eduardo M Azevedo and Daniel Gottlieb Perfect competition in markets with adverse selection Mimeo, University of Pennsylvania, 04
7 6 PierreAndré Chiappori and Bernard Salanié Testing for asymmetric information in insurance markets Journal of Political Economy, 08():56 78,000 Alma Cohen and Liran Einav Estimating risk preferences from deductible choice American Economic Review, 97(3): ,007 Maxim Engers and Luis Fernandez Market equilibrium with hidden knowledge and selfselection Econometrica, 55():45 439,987 Hanming Fang, Michael P Keane, and Dan Silverman Sources of advantageous selection: Evidence from the medigap insurance market Journal of Political Economy, 6(): , 008 Amy Finkelstein and Kathleen McGarry Multiple dimensions of private information: Evidence from the longterm care insurance market American Economic Review, 96(4): , 006 Benjamin Handel, Igal Hendel, and Michael D Whinston Equilibria in health exchanges: Adverse selection vs reclassification risk Econometrica, 83(4):6 33, 05 James J Heckman Lessons from the technology of skill formation Annals of the New York Academy of Sciences, 038():79 00,004 John G Riley Informational equilibrium Econometrica, pages33 359, 979 JeanCharles Rochet and Lars A Stole The economics of multidimensional screening In Mathias Dewatripont, Lars Peter Hansen, and Stephan Turnovsky, editors, Advances in Economics and Econometrics: Theory and Applications Cambridge University Press, Cambridge, 003 Michael Rothschild and Joseph Stiglitz Equilibrium in competitive insurance markets: An essay on the economics of imperfect information Quarterly Journal of Economics, 90(4): , 976 Michael Smart Competitive insurance markets with two unobservables International Economic Review, 4():5 69,000 André Veiga and E Glen Weyl Product design in selection markets Mimeo, University of Chicago, 04
Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance
American Economic Review: Papers & Proceedings 2008, 98:2, 157 162 http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.2.157 Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance
More informationUnraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets
Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Nathaniel Hendren January, 2014 Abstract Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that
More informationModeling Competition and Market. Equilibrium in Insurance: Empirical. Issues
Modeling Competition and Market Equilibrium in Insurance: Empirical Issues PierreAndré Chiappori Bernard Salanié December 2007 In the last decade or so, numerous papers have been devoted to empirical
More informationModeling Insurance Markets
Modeling Insurance Markets Nathaniel Hendren Harvard April, 2015 Nathaniel Hendren (Harvard) Insurance April, 2015 1 / 29 Modeling Competition Insurance Markets is Tough There is no wellagreed upon model
More informationOn the Existence of Nash Equilibrium in General Imperfectly Competitive Insurance Markets with Asymmetric Information
analysing existence in general insurance environments that go beyond the canonical insurance paradigm. More recently, theoretical and empirical work has attempted to identify selection in insurance markets
More informationCournot s model of oligopoly
Cournot s model of oligopoly Single good produced by n firms Cost to firm i of producing q i units: C i (q i ), where C i is nonnegative and increasing If firms total output is Q then market price is P(Q),
More informationNonExclusive Competition in the Market for Lemons
NonExclusive Competition in the Market for Lemons Andrea Attar Thomas Mariotti François Salanié October 2007 Abstract In order to check the impact of the exclusivity regime on equilibrium allocations,
More informationAsymmetric information in insurance: general testable implications
Asymmetric information in insurance: general testable implications PierreAndré Chiappori Bruno Jullien François Salanié Bernard Salanié Several recent papers on empirical contract theory and insurance
More informationA Simple Model of Price Dispersion *
Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 112 http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0112.pdf A Simple Model of Price Dispersion
More informationEquilibrium: Illustrations
Draft chapter from An introduction to game theory by Martin J. Osborne. Version: 2002/7/23. Martin.Osborne@utoronto.ca http://www.economics.utoronto.ca/osborne Copyright 1995 2002 by Martin J. Osborne.
More informationDoes the Secondary Life Insurance Market Threaten. Dynamic Insurance?
Does the Secondary Life Insurance Market Threaten Dynamic Insurance? Glenn Daily, Igal Hendel, and Alessandro Lizzeri January 2008. 1 Introduction There is a vast theoretical literature on dynamic contracts
More informationMarket Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole
Market Power and Efficiency in Card Payment Systems: A Comment on Rochet and Tirole Luís M. B. Cabral New York University and CEPR November 2005 1 Introduction Beginning with their seminal 2002 paper,
More informationEquilibrium in Competitive Insurance Markets: An Essay on the Economic of Imperfect Information
Equilibrium in Competitive Insurance Markets: An Essay on the Economic of Imperfect Information By: Michael Rothschild and Joseph Stiglitz Presented by Benjamin S. Barber IV, Xiaoshu Bei, Zhi Chen, Shaiobi
More informationADVERSE SELECTION AND MORAL HAZARD IN INSURANCE: CAN DYNAMIC DATA HELP TO DISTINGUISH?
ADVERSE SELECTION AND MORAL HAZARD IN INSURANCE: CAN DYNAMIC DATA HELP TO DISTINGUISH? Jaap H. Abbring Free University James J. Heckman University of Chicago PierreAndré Chiappori University of Chicago
More informationOnline Appendix Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage
Online Appendix Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage Alex Edmans LBS, NBER, CEPR, and ECGI Itay Goldstein Wharton Wei Jiang Columbia May 8, 05 A Proofs of Propositions and
More informationProduct Differentiation In homogeneous goods markets, price competition leads to perfectly competitive outcome, even with two firms Price competition
Product Differentiation In homogeneous goods markets, price competition leads to perfectly competitive outcome, even with two firms Price competition with differentiated products Models where differentiation
More informationImperfect information Up to now, consider only firms and consumers who are perfectly informed about market conditions: 1. prices, range of products
Imperfect information Up to now, consider only firms and consumers who are perfectly informed about market conditions: 1. prices, range of products available 2. characteristics or relative qualities of
More informationWorking Paper Does retailer power lead to exclusion?
econstor www.econstor.eu Der OpenAccessPublikationsserver der ZBW LeibnizInformationszentrum Wirtschaft The Open Access Publication Server of the ZBW Leibniz Information Centre for Economics Rey, Patrick;
More informationBargaining Solutions in a Social Network
Bargaining Solutions in a Social Network Tanmoy Chakraborty and Michael Kearns Department of Computer and Information Science University of Pennsylvania Abstract. We study the concept of bargaining solutions,
More informationCompetitive Insurance Markets Under Asymmetric Information. When Agents Make Mistakes
Competitive Insurance Markets Under Asymmetric Information When Agents Make Mistakes Mark Browne 1, Richard Peter 2, Andreas Richter 3 Abstract: We analyze a competitive insurance market under asymmetric
More informationInsurance Markets with Differential Information
Insurance Markets with Differential Information S. Hun Seog [석승훈] Graduate School of Management, KAIST (KGSM) 20743 CheongryangriDong, DongdaemunGu, Seoul, 130722, KOREA Email: seogsh@kgsm.kaist.ac.kr
More informationHackingproofness and Stability in a Model of Information Security Networks
Hackingproofness and Stability in a Model of Information Security Networks Sunghoon Hong Preliminary draft, not for citation. March 1, 2008 Abstract We introduce a model of information security networks.
More informationAdverse selection and moral hazard in health insurance.
Adverse selection and moral hazard in health insurance. Franck Bien David Alary University Paris Dauphine November 10, 2006 Abstract In this paper, we want to characterize the optimal health insurance
More informationPricing and Persuasive Advertising in a Differentiated Market
Pricing and Persuasive Advertising in a Differentiated Market Baojun Jiang Olin Business School, Washington University in St. Louis, St. Louis, MO 63130, baojunjiang@wustl.edu Kannan Srinivasan Tepper
More informationAsymmetric Information in Insurance: General Testable Implications
Asymmetric Information in Insurance: General Testable Implications PierreAndré Chiappori Bruno Jullien Bernard Salanié François Salanié February 27, 2004 Abstract Several recent papers on empirical contract
More informationThe vertical differentiation model in the insurance market: costs structure and equilibria analysis
The vertical differentiation model in the insurance market: costs structure and equilibria analysis Denis V. Kuzyutin 1, Maria V. Nikitina, Nadezhda V. Smirnova and Ludmila N. Razgulyaeva 1 St.Petersburg
More informationPersuasion by Cheap Talk  Online Appendix
Persuasion by Cheap Talk  Online Appendix By ARCHISHMAN CHAKRABORTY AND RICK HARBAUGH Online appendix to Persuasion by Cheap Talk, American Economic Review Our results in the main text concern the case
More informationLecture 7: Policy Design: Health Insurance & Adverse Selection
Health Insurance Spending & Health Adverse Selection Lecture 7: Policy Design: Health Insurance & Adverse Selection Johannes Spinnewijn London School of Economics Lecture Notes for Ec426 1 / 25 Health
More informationPlatform Strategy of Video Game Software: Theory and Evidence. Masayoshi Maruyama, Kobe University Kenichi Ohkita, Kyoto Gakuen University.
Platform Strategy of Video Game Software: Theory and Evidence Masayoshi Maruyama, Kobe University Kenichi Ohkita, Kyoto Gakuen University bstract This paper analyzes a model of platform competition in
More informationEquilibria in Health Exchanges: Adverse Selection vs. Reclassification Risk
Equilibria in Health Exchanges: Adverse Selection vs. Reclassification Risk Ben Handel,IgalHendel,andMichaelD.Whinston April 15, 2014 Abstract This paper studies regulated health insurance markets known
More informationGame Theory: Supermodular Games 1
Game Theory: Supermodular Games 1 Christoph Schottmüller 1 License: CC Attribution ShareAlike 4.0 1 / 22 Outline 1 Introduction 2 Model 3 Revision questions and exercises 2 / 22 Motivation I several solution
More informationR&D cooperation with unitelastic demand
R&D cooperation with unitelastic demand Georg Götz This draft: September 005. Abstract: This paper shows that R&D cooperation leads to the monopoly outcome in terms of price and quantity if demand is
More informationRationales for Social Insurance
Florian Scheuer 4/1/2014 Rationales for Social Insurance 1 Overview 4 weeks on... why have social insurance? failures in insurance markets and how to detect them optimal social insurance design (focus:
More informationWork incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard
Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard Cécile Aubert Abstract Two agents sequentially contracts with different principals under moral
More informationLabor Economics, 14.661. Lecture 3: Education, Selection, and Signaling
Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling Daron Acemoglu MIT November 3, 2011. Daron Acemoglu (MIT) Education, Selection, and Signaling November 3, 2011. 1 / 31 Introduction
More informationTesting Advantageous Selection by Hidden Action: Evidence from Automobile Liability Insurance. Rachel J. Huang. Larry Y. Tzeng. Kili C.
Testing Advantageous Selection by Hidden Action: Evidence from Automobile Liability Insurance Rachel J. Huang Associate Professor, Department of Finance Yuan Ze University, Chung Li, Taiwan Larry Y. Tzeng
More informationPrices versus Exams as Strategic Instruments for Competing Universities
Prices versus Exams as Strategic Instruments for Competing Universities Elena Del Rey and Laura Romero October 004 Abstract In this paper we investigate the optimal choice of prices and/or exams by universities
More informationChapter 7. Sealedbid Auctions
Chapter 7 Sealedbid Auctions An auction is a procedure used for selling and buying items by offering them up for bid. Auctions are often used to sell objects that have a variable price (for example oil)
More informationDynamic Inefficiencies in Insurance Markets: Evidence from longterm care insurance *
Dynamic Inefficiencies in Insurance Markets: Evidence from longterm care insurance * Amy Finkelstein Harvard University and NBER Kathleen McGarry University of California, Los Angeles and NBER Amir Sufi
More informationConditions for Efficiency in Package Pricing
Conditions for Efficiency in Package Pricing Babu Nahata Department of Economics University of Louisville Louisville, Kentucky 40292, USA. email: nahata@louisville.edu and Serguei Kokovin and Evgeny Zhelobodko
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationPart IV. Pricing strategies and market segmentation
Part IV. Pricing strategies and market segmentation Chapter 9. Menu pricing Slides Industrial Organization: Markets and Strategies Paul Belleflamme and Martin Peitz Cambridge University Press 2010 Chapter
More informationScreening by the Company You Keep: Joint Liability Lending and the Peer Selection Maitreesh Ghatak presented by Chi Wan
Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Maitreesh Ghatak presented by Chi Wan 1. Introduction The paper looks at an economic environment where borrowers have some
More informationThe Plaintiff s Attorney in the Liability Insurance Claims Settlement Process: A Game Theoretic Approach
The Plaintiff s Attorney in the Liability Insurance Claims Settlement Process: A Game Theoretic Approach Lisa L. Posey * Abstract: The decision of a claimant to obtain legal counsel, the timing of this
More information2. Information Economics
2. Information Economics In General Equilibrium Theory all agents had full information regarding any variable of interest (prices, commodities, state of nature, cost function, preferences, etc.) In many
More information15. Adverse Selection in Insurance Markets
ECO 317 Economics of Uncertainty Fall Term 2009 Slides to accompany 15. Adverse Selection in Insurance Markets ADVERSE SELECTION GENERAL ISSUES One party in a trade or contract has advance private information
More informationThe Dirichlet Unit Theorem
Chapter 6 The Dirichlet Unit Theorem As usual, we will be working in the ring B of algebraic integers of a number field L. Two factorizations of an element of B are regarded as essentially the same if
More informationVoluntary Health Plan Subsidies and Public Expenditure
TSE 605 October 2015 Voluntary Health Plan Subsidies and Public Expenditure Giancarlo Buitrago, David Bardey Voluntary Health Plan Subsidies and Public Expenditure Giancarlo Buitrago 1, David Bardey 2
More informationCompetitive CyberInsurance and Internet Security
Competitive CyberInsurance and Internet Security Nikhil Shetty Galina Schwartz Mark Felegyhazi Jean Walrand {nikhils@eecs, schwartz@eecs, mark@icsi, wlr@eecs}.berkeley.edu Abstract This paper investigates
More informationTwo Papers on Internet Connectivity and Quality. Abstract
Two Papers on Internet Connectivity and Quality ROBERTO ROSON Dipartimento di Scienze Economiche, Università Ca Foscari di Venezia, Venice, Italy. Abstract I review two papers, addressing the issue of
More informationGains from trade in a Hotelling model of differentiated duopoly
Gains from trade in a Hotelling model of differentiated duopoly Kenji Fujiwara School of Economics, Kwansei Gakuin University and Department of Economics, McGill University August 8, 009 Abstract Constructing
More informationWeek 7  Game Theory and Industrial Organisation
Week 7  Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number
More informationSystem Reliability and Free Riding
System Reliability and Free Riding Hal R. Varian University of California, Berkeley February 2001 This version: November 30, 2004. System reliability often depends on the effort of many individuals, making
More informationDEPARTMENT OF ECONOMICS YALE UNIVERSITY P.O. Box 208268 New Haven, CT 065208268
DEPARTMENT OF ECONOMICS YALE UNIVERSITY P.O. Box 208268 New Haven, CT 065208268 http://www.econ.yale.edu/ Economics Department Working Paper No. 91 EQUILIBRIUM AND STRATEGIC COMMUNICATION IN THE ADVERSE
More informationStrategic Adverse Selection: Raising Competitor Costs in the Insurance Industry
Strategic Adverse Selection: Raising Competitor Costs in the Insurance Industry Kevin Shaver Duquesne University July 5 202 Abstract A key feature of insurance markets is that the cost of selling insurance
More informationINEFFICIENT TRADE PATTERNS: EXCESSIVE TRADE, CROSSHAULING AND DUMPING
INEFFICIENT TRADE PATTERNS: EXCESSIVE TRADE, CROSSHAULING AND DUMPING Benjamin Eden 1 Vanderbilt University and The University of Haifa February 2005 Mailing address: Economics, VU station B #351819 2301
More informationAdvertising Competition and Risk Selection in Health Insurance Markets: Evidence from Medicare Advantage
Advertising Competition and Risk Selection in Health Insurance Markets: Evidence from Medicare Advantage Naoki Aizawa and You Suk Kim Job Market Paper November 13, 2013 Abstract This paper studies the
More informationNotes V General Equilibrium: Positive Theory. 1 Walrasian Equilibrium and Excess Demand
Notes V General Equilibrium: Positive Theory In this lecture we go on considering a general equilibrium model of a private ownership economy. In contrast to the Notes IV, we focus on positive issues such
More informationOptimal Student Loans and Graduate Tax: under Moral Hazard and Adverse Selection
Optimal Student Loans and Graduate Tax: under Moral Hazard and Adverse Selection Robert GaryBobo Sciences Po, 2014 Introduction (1) Motivation Preview of Results Literature Student loans are quantitatively
More informationEstimation of Search Frictions in the UK Electricity Market
Estimation of Search Frictions in the UK Electricity Market Monica Giulietti Nottingham University Business School Nottingham United Kingdom Michael Waterson Department of Economics University of Warwick
More informationCompetition between Apple and Samsung in the smartphone market introduction into some key concepts in managerial economics
Competition between Apple and Samsung in the smartphone market introduction into some key concepts in managerial economics Dr. Markus Thomas Münter Collège des Ingénieurs Stuttgart, June, 03 SNORKELING
More informationConnecting Theory to Data in Analyzing Social Insurance
PRELIMINARY AND INCOMPLETE: DO NOT CITE Connecting Theory to Data in Analyzing Social Insurance Raj Chetty, Harvard University and NBER Amy Finkelstein, MIT and NBER ABSTRACT We survey the literature on
More informationLoans, Insurance and Failures in the Credit Market for Students
Loans, Insurance and Failures in the Credit Market for Students Elena Del Rey and Bertrand Verheyden December 2009 Version in progress Abstract In the education literature, it is generally acknowledged
More informationSources of Advantageous Selection: Evidence from the Medigap Insurance Market* Hanming Fang Yale University. Michael Keane Yale University
Yale University Department of Economics Yale Working Papers on Economic Applications and Policy Yale University P.O. Box 208268 New Haven, CT 065208268 DISCUSSION PAPER NO. 17 Sources of Advantageous
More informationAdverse Selection and Moral Hazard in Health Insurance
Adverse Selection and Moral Hazard in Health Insurance Liran Einav (Stanford and NBER) EARIE, Rome September 3, 2012 1 Why insurance? Insurance markets make a good target for economists Large and important
More informationWorking Paper Series
RGEA Universidade de Vigo http://webs.uvigo.es/rgea Working Paper Series A Market Game Approach to Differential Information Economies Guadalupe Fugarolas, Carlos HervésBeloso, Emma Moreno García and
More informationThe Impact of Intermediary Remuneration in Differentiated Insurance Markets
Annette Hofmann, Martin Nell The Impact of Intermediary Remuneration in Differentiated Insurance Markets Working Papers on Risk and Insurance Hamburg University No 22 February 2008 Tor zur Welt der Wissenschaft
More informationTesting Cost Inefficiency under Free Entry in the Real Estate Brokerage Industry
Web Appendix to Testing Cost Inefficiency under Free Entry in the Real Estate Brokerage Industry Lu Han University of Toronto lu.han@rotman.utoronto.ca SeungHyun Hong University of Illinois hyunhong@ad.uiuc.edu
More informationInternet Advertising and the Generalized Second Price Auction:
Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords Ben Edelman, Harvard Michael Ostrovsky, Stanford GSB Michael Schwarz, Yahoo! Research A Few
More informationAsymmetric information in insurance: general testable implications
Asymmetric information in insurance: general testable implications PierreAndré Chiappori Bruno Jullien Bernard Salanié Francois Salanié Abstract Several recent papers on empirical contract theory and
More informationEIEF Working Paper 03/12 February 2012. Incentive and Selection Effects of Medigap Insurance on Inpatient Care
EIEF WORKING PAPER series IEF Einaudi Institute for Economics and Finance EIEF Working Paper 03/12 February 2012 Incentive and Selection Effects of Medigap Insurance on Inpatient Care by Valentino Dardanoni
More informationEstimating welfare in insurance markets using variation in prices
Estimating welfare in insurance markets using variation in prices Liran Einav, Amy Finkelstein, and Mark R. Cullen y August 2009 Abstract. We provide a graphical illustration of how standard consumer and
More informationQuality differentiation and entry choice between online and offline markets
Quality differentiation and entry choice between online and offline markets Yijuan Chen Australian National University Xiangting u Renmin University of China Sanxi Li Renmin University of China ANU Working
More informationOptimal election of qualities in the presence of externalities
Optimal election of qualities in the presence of externalities Dolores Garcia Maria Tugores October 2002 Abstract In this paper we obtain the quality and the level of production that a certain sector would
More informationWhen to Use the Open Business Model for Software Products under Network Effects?
When to Use the Open Business Model for Software Products under Network Effects? Lizhen Xu, Marius F. Niculescu and D. J. Wu Scheller College of Business, Georgia Institute of Technology, Atlanta, GA 30308
More informationPlease Do not Circulate Preliminary and Incomplete Mixed Bundling and Imperfect Competition
Abstract A model of twoproduct, Hotelling duopolists is examined in which firms can engage in mixed bundling. Even though products are independent in consumption, bundled pricing induces complementarity
More informationINTERNATIONAL ECONOMICS, FINANCE AND TRADE Vol.I  Economics of Scale and Imperfect Competition  Bharati Basu
ECONOMIES OF SCALE AND IMPERFECT COMPETITION Bharati Department of Economics, Central Michigan University, Mt. Pleasant, Michigan, USA Keywords: Economies of scale, economic geography, external economies,
More informationHeterogeneity, Demand for Insurance and Adverse Selection
Heterogeneity, Demand for Insurance and Adverse Selection Johannes Spinnewijn London School of Economics and CEPR September 2015 Abstract Recent evidence underlines the importance of demand frictions distorting
More informationNew Evidence from Telematics Data
Asymmetric Information in Automobile Insurance: New Evidence from Telematics Data Alexander Muermann Daniela Straka December 2010 We provide novel insights into the effects of private information in automobile
More informationWhy is Insurance Good? An Example Jon Bakija, Williams College (Revised October 2013)
Why is Insurance Good? An Example Jon Bakija, Williams College (Revised October 2013) Introduction The United States government is, to a rough approximation, an insurance company with an army. 1 That is
More informationMARKET STRUCTURE AND INSIDER TRADING. Keywords: Insider Trading, Stock prices, Correlated signals, Kyle model
MARKET STRUCTURE AND INSIDER TRADING WASSIM DAHER AND LEONARD J. MIRMAN Abstract. In this paper we examine the real and financial effects of two insiders trading in a static Jain Mirman model (Henceforth
More informationNew Evidence from Telematic Data
Asymmetric Information in Automobile Insurance: New Evidence from Telematic Data Alexander Muermann Daniela Straka July 2011 We provide novel insights into the effects of private information in automobile
More informationRichard Schmidtke: Private Provision of a Complementary Public Good
Richard Schmidtke: Private Provision of a Complementary Public Good Munich Discussion Paper No. 200620 Department of Economics University of Munich Volkswirtschaftliche Fakultät LudwigMaximiliansUniversität
More informationHealth Insurance and Competition in Health Care Markets
Auburn University Department of Economics Working Paper Series Health Insurance and Competition in Health Care Markets Gilad Sorek Auburn University AUWP 215 This paper can be downloaded without charge
More informationPlatform Competition under Asymmetric Information
Platform Competition under Asymmetric Information Hanna Hałaburda Yaron Yehezkel Working Paper 11080 Copyright 2011 by Hanna Hałaburda and Yaron Yehezkel Working papers are in draft form. This working
More informationBuyer Search Costs and Endogenous Product Design
Buyer Search Costs and Endogenous Product Design Dmitri Kuksov kuksov@haas.berkeley.edu University of California, Berkeley August, 2002 Abstract In many cases, buyers must incur search costs to find the
More informationIDENTIFICATION IN A CLASS OF NONPARAMETRIC SIMULTANEOUS EQUATIONS MODELS. Steven T. Berry and Philip A. Haile. March 2011 Revised April 2011
IDENTIFICATION IN A CLASS OF NONPARAMETRIC SIMULTANEOUS EQUATIONS MODELS By Steven T. Berry and Philip A. Haile March 2011 Revised April 2011 COWLES FOUNDATION DISCUSSION PAPER NO. 1787R COWLES FOUNDATION
More informationA Comparison of the Wholesale Structure and the Agency Structure in Differentiated Markets
A Comparison of the Wholesale Structure and the Agency Structure in Differentiated Markets Liang Lu * School of Economics and the Centre for Competition Policy, University of East Anglia, Norwich NR4 7TJ,
More informationLoyalty Rewards Programs in the Face of Entry
Loyalty Rewards Programs in the Face of Entry Ross A. Brater January 03 Abstract consider a twoperiod model of a horizontally differentiated product market which features an incumbent firm and a potential
More informationYes, No, Perhaps?  Explaining the Demand for Risk Classification Insurance with Fuzzy Private Information
Yes, No, Perhaps?  Explaining the Demand for Risk Classification Insurance with Fuzzy Private Information Richard Peter, Andreas Richter, Petra Steinorth December 9, 010 Abstract We examine the demand
More informationAsymmetric information evidence from the home insurance market
INSTITUTT FOR SAMFUNNSØKONOMI DEPARTMENT OF ECONOMICS SAM 19 2010 ISSN: 08046824 AUGUST 2010 Discussion paper Asymmetric information evidence from the home insurance market BY KARL OVE AARBU This series
More information9.1 Cournot and Bertrand Models with Homogeneous Products
1 Chapter 9 Quantity vs. Price Competition in Static Oligopoly Models We have seen how price and output are determined in perfectly competitive and monopoly markets. Most markets are oligopolistic, however,
More informationOnline Supplementary Material
Online Supplementary Material The Supplementary Material includes 1. An alternative investment goal for fiscal capacity. 2. The relaxation of the monopoly assumption in favor of an oligopoly market. 3.
More informationA Competitive Model of Annuity and Life Insurance with Nonexclusive Contracts
A Competitive Model of Annuity and Life Insurance with Nonexclusive Contracts Roozbeh Hosseini Arizona Stat University Abstract I study a two period economy in which altruistic individuals have uncertain
More informationOligopoly: Cournot/Bertrand/Stackelberg
Outline Alternative Market Models Wirtschaftswissenschaften Humboldt Universität zu Berlin March 5, 2006 Outline 1 Introduction Introduction Alternative Market Models 2 Game, Reaction Functions, Solution
More informationALGEBRA 2: 4.1 Graph Quadratic Functions in Standard Form
ALGEBRA 2: 4.1 Graph Quadratic Functions in Standard Form Goal Graph quadratic functions. VOCABULARY Quadratic function A function that can be written in the standard form y = ax 2 + bx+ c where a 0 Parabola
More informationPrice Discrimination: Part 2. Sotiris Georganas
Price Discrimination: Part 2 Sotiris Georganas 1 More pricing techniques We will look at some further pricing techniques... 1. Nonlinear pricing (2nd degree price discrimination) 2. Bundling 2 Nonlinear
More informationSUPPLEMENT TO DECENTRALIZED TRADING WITH PRIVATE INFORMATION : ONLINE APPENDIX (Econometrica, Vol. 82, No. 3, May 2014, 1055 1091)
Econometrica Supplementary Material SUPPLEMENT TO DECENTRALIZED TRADING WITH PRIVATE INFORMATION : ONLINE APPENDIX Econometrica, Vol. 82, No. 3, May 2014, 1055 1091) BY MIKHAIL GOLOSOV, GUIDO LORENZONI,
More informationPatent Litigation with Endogenous Disputes
Patent itigation with Endogenous Disputes Presentation at the AEA Annual Meeting January 6, 006 Session: Intellectual Property, itigation, and Innovation By James Bessen and Michael J. Meurer James Bessen
More informationSymbiotic production: The case of telecommunication pricing
Symbiotic production: The case of telecommunication pricing Michael Carter Julian Wright Abstract In this paper we analyze a generalization of vertical monopolies in which monopoly suppliers trade essential
More information