Economic Theory

, Volume 62, Issue 1–2, pp 3–13 | Cite as

Equilibrium with mutual organizations in adverse selection economies

Research Article

Abstract

We develop an equilibrium concept in the Debreu (Proc Natl Acad Sci USA 40(7):588–592, 1954) theory of value tradition for a class of adverse selection economies which includes the Spence (Q J Econ 87(3):355–374, 1973) signaling and Rothschild–Stiglitz (Q J Econ 90(4):629–649, 1976) insurance environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.

Keywords

Adverse selection equilibrium Theory of value Insurance Signaling Mutual organization The core 

JEL Classification

C62 D46 D82 G29 G22 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  • Adam Blandin
    • 1
  • John H. Boyd
    • 2
  • Edward C. Prescott
    • 1
    • 3
  1. 1.Arizona State UniversityTempeUSA
  2. 2.University of MinnesotaMinneapolisUSA
  3. 3.Federal Reserve Bank of MinneapolisMinneapolisUSA

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