TY  - RPRT
        AU  - Siemens, Ferdinand von
AU  - Kosfeld, Michael
        TI  - Negative Externalities and Equilibrium Existence in Competitive Markets with Adverse Selection
        PY  - 2009/Apr/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 4125
        UR  - https://www.iza.org/index.php/publications/dp4125
        AB  - 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.
        KW  - asymmetric information
KW  - competition
KW  - adverse selection
KW  - externality
        ER  -