TY - JOUR
T1 - INCENTIVE EFFICIENT PRICE SYSTEMS IN LARGE INSURANCE ECONOMIES WITH ADVERSE SELECTION
AU - Citanna, Alessandro
AU - Siconolfi, Paolo
N1 - Publisher Copyright:
© (2016) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
PY - 2016/8/1
Y1 - 2016/8/1
N2 - We decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, whereas firms sell tickets and supply slots at mechanisms at given prices. Beyond optimization, market clearing, and rational expectations, an equilibrium requires that firms cannot favorably change, or cut, prices. An equilibrium exists and is incentive efficient. An equilibrium can be computed as the solution to a programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set. For two-types economies, this is the only equilibrium outcome.
AB - We decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, whereas firms sell tickets and supply slots at mechanisms at given prices. Beyond optimization, market clearing, and rational expectations, an equilibrium requires that firms cannot favorably change, or cut, prices. An equilibrium exists and is incentive efficient. An equilibrium can be computed as the solution to a programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set. For two-types economies, this is the only equilibrium outcome.
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U2 - 10.1111/iere.12184
DO - 10.1111/iere.12184
M3 - Article
AN - SCOPUS:84981555690
SN - 0020-6598
VL - 57
SP - 1027
EP - 1056
JO - International Economic Review
JF - International Economic Review
IS - 3
ER -