A Note on Uniqueness in Game-Theoretic Foundations of the Reactive Equilibrium

14 Pages Posted: 29 Oct 2014

See all articles by Wanda Mimra

Wanda Mimra

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Achim Wambach

Centre for European Economic Research (ZEW); University of Mannheim; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: September 2014

Abstract

Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium's logic in a dynamic market context with active consumers. We show that the Riley/Rothschild-Stiglitz contracts constitute the unique equilibrium allocation in any pure strategy subgame perfect Nash equilibrium.

Keywords: asymmetric information, competitive insurance market, contract addition, reactive equilibrium

JEL Classification: C72, D82, G22, L10

Suggested Citation

Mimra, Wanda and Wambach, Achim, A Note on Uniqueness in Game-Theoretic Foundations of the Reactive Equilibrium (September 2014). CFS Working Paper, No. 483. Available at SSRN: https://ssrn.com/abstract=2515395 or http://dx.doi.org/10.2139/ssrn.2515395

Wanda Mimra

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Achim Wambach (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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