An example of non-existence of Riley equilibrium in markets with adverse selection
Azevedo, E. M. & Gottlieb, D.
(2019).
An example of non-existence of Riley equilibrium in markets with adverse selection.
Games and Economic Behavior,
116, 152 - 157.
https://doi.org/10.1016/j.geb.2019.04.007
(2019).
An example of non-existence of Riley equilibrium in markets with adverse selection.
Games and Economic Behavior,
116, 152 - 157.
https://doi.org/10.1016/j.geb.2019.04.007
Rothschild and Stiglitz [1976] proposed a model of a competitive market with adverse selection and showed that a (pure strategy) Nash equilibrium may not exist. Among the solutions proposed to deal with this problem, a particularly influential one is the notion of Riley (or reactive) equilibrium [Riley, 1979]. We give an example that shows that a Riley equilibrium may not exist if consumers are not ordered.