Competitive markets for non-exclusive contracts with adverse selection: The role of entry fees

Alberto Bisin, Piero Gottardi

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper studies competitive equilibria in economies characterized by the presence of asymmetric information, where non-exclusive contracts are traded in competitive markets and agents may be privately informed over contracts' payoffs. For such economies competitive equilibria may not exist when contracts trade at linear prices. We show that (non-trivial) competitive equilibria exist, under general conditions, when prices exhibit a minimal form of non-linearity (or, equivalently, a minimal requirement on the observability of agents' trades): the presence of two-part tariffs suffices, where the cost of trading each contract consists of an entry fee and a linear component in the quantity traded. The entry fee is determined at equilibrium and represents a measure of adverse selection in the economy.

    Original languageEnglish (US)
    Pages (from-to)313-338
    Number of pages26
    JournalReview of Economic Dynamics
    Volume6
    Issue number2
    DOIs
    StatePublished - Apr 2003

    Keywords

    • Asymmetric information
    • General equilibrium
    • Two-part tariffs

    ASJC Scopus subject areas

    • Economics and Econometrics

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