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The Existence of the Miyazaki-Wilson-Spence Equilibrium with Continuous Type Distributions

SSRN Electronic Journal
2020
  • 1
    Citations
  • 620
    Usage
  • 5
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    620
    • Abstract Views
      620
  • Captures
    5

Article Description

We prove the existence of the constrained efficient Miyazaki (1977)-Wilson (1977)-Spence (1978) equilibrium in competitive markets with adverse selection when the distribution of unobservable types is continuous. Our existence proof applies under extremely general assumptions about individual preferences. When we restrict preferences to have the widely-used-in-the-selection-markets-literature quasilinear form, we characterize the properties of this equilibrium by developing a simple and computationally efficient numerical method for constructing it. Applying this method, we show in a natural setting how one would compute the equilibrium allocation, potentially facilitating empirical work using the MWS equilibrium. We illustrate this empirical application in the context of policy interventions and show that the welfare implications of a coverage mandate critically hinge on whether the market implements a constrained efficient allocation like the MWS equilibrium or a constrained inefficient allocation like in Azevedo and Gottlieb (2017).

Bibliographic Details

Irina Gemmo; Christian Kubitza; Casey Rothschild

Elsevier BV

Asymmetric and private information; adverse selection; insurance markets; equilibrium existence

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