%0 Report
        %A Siemens, Ferdinand von
%A Kosfeld, Michael
        %T Negative Externalities and Equilibrium Existence in Competitive Markets with Adverse Selection
        %D 2009
        %8 2009 Apr
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 4125
        %U https://www.iza.org/index.php/publications/dp4125
        %X Rothschild and Stiglitz (1976) show that there need not exist a competitive equilibrium in markets with adverse selection. Building on their framework we demonstrate that externalities between agents − an agent's utility upon accepting a contract depends on the average type attracted by the respective principal − can solve the equilibrium existence problem, even when the size of the externalities is arbitrarily small. Our result highlights the degree of control a principal has over the attractiveness of his contracts as an important feature for equilibrium existence, thereby offering a new perspective on existing theories of competition in markets with adverse selection.
        %K asymmetric information
%K competition
%K adverse selection
%K externality