Competitive equilibria with asymmetric information

Alberto Bisin, Piero Gottardi

    Research output: Contribution to journalArticle

    Abstract

    This paper studies competitive equilibria in economies where agents trade in markets for standardized, non-exclusive financial contracts, under conditions of asymmetric information (both of the moral hazard and the adverse selection type). The problems for the existence of competitive equilibria in this framework are identified, and shown to be essentially the same under different forms of asymmetric information. We then show that a "minimal" form of non-linearity of prices (a bid-ask spread, requiring only the possibility to separate buyers and sellers), and the condition that the aggregate return on the individual positions in each contract can be perfectly hedged in the existing markets, ensure the existence of competitive equilibria in the case of both adverse selection and moral hazard. Journal of Economic Literature Classification Numbers: D50, D82.

    Original languageEnglish (US)
    Pages (from-to)1-48
    Number of pages48
    JournalJournal of Economic Theory
    Volume87
    Issue number1
    DOIs
    StatePublished - Jul 1999

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    Asymmetric information
    Competitive equilibrium
    Moral hazard
    Adverse selection
    Nonlinearity
    Bid/ask spread
    Financial contracts
    Economics
    Seller
    Buyers

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Competitive equilibria with asymmetric information. / Bisin, Alberto; Gottardi, Piero.

    In: Journal of Economic Theory, Vol. 87, No. 1, 07.1999, p. 1-48.

    Research output: Contribution to journalArticle

    Bisin, Alberto ; Gottardi, Piero. / Competitive equilibria with asymmetric information. In: Journal of Economic Theory. 1999 ; Vol. 87, No. 1. pp. 1-48.
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