On Rothschild–Stiglitz as Competitive Pooling
- 128 Downloads
Dubey and Geanakoplos (Q J Econ 117:1529–1570, 2002) have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild–Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is unique.
We prove that their uniqueness result is not a consequence of the framework, but rather of their definition of refined equilibria. When other types of perturbations are used, the model allows for many pooling allocations to be supported as such: in particular, this is the case for pooling allocations that Pareto dominate the separating equilibrium.
KeywordsCompetitive pooling Insurance Adverse selection Signalling Refined equilibrium Separating equilibrium
JEL Classification NumbersD4 D5 D41 D52 D81 D82
Unable to display preview. Download preview PDF.
- Gale D. (1996) Equilibria and Pareto optima of markets with adverse selection. Econ Theory 7, 207–235Google Scholar