Does competitive pricing cause market breakdown under extreme adverse selection?

• 成果类型: Article
• 署名作者: Mailath, George J.; Noeldeke, Georg
• 署名单位: University of Pennsylvania; University of Basel
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2007.08.001
• 发表日期: 2008
• 页码: 97-125
• 关键词: Adverse selection; market breakdown; SEPARATION; Competitive pricing

摘要

We study market breakdown in a finance context under extreme adverse selection with and without competitive pricing. Adverse selection is extreme if for any price there are informed agent types with whom uninformed agents prefer not to trade. Market breakdown occurs when no trade is the only equilibrium outcome. We present a necessary and sufficient condition for market breakdown. If the condition holds, then trade is not viable. If the condition fails, then trade can occur under competitive pricing. There are environments in which the condition holds and others in which it fails. (c) 2007 Elsevier Inc. All rights reserved.