TY - JOUR
T1 - Competitive markets for non-exclusive contracts with adverse selection
T2 - The role of entry fees
AU - Bisin, Alberto
AU - Gottardi, Piero
N1 - Funding Information:
The project of this paper was begun when the first author was visiting Delta and was continued while the second author was visiting NYU and Yale; we wish to thank the three institutions for their very kind hospitality. We are grateful to Fernando Alvarez, an anonymous referee, and David Levine (the Co-editor) for very helpful comments. The first author gratefully acknowledges the financial and institutional support of the C.V. Starr Center for Applied Economics. The second author is grateful to CNR and MURST for financial support.
PY - 2003/4
Y1 - 2003/4
N2 - 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.
AB - 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.
KW - Asymmetric information
KW - General equilibrium
KW - Two-part tariffs
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U2 - 10.1016/S1094-2025(02)00008-X
DO - 10.1016/S1094-2025(02)00008-X
M3 - Article
AN - SCOPUS:0037949212
SN - 1094-2025
VL - 6
SP - 313
EP - 338
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 2
ER -