Private Information and Insurance Rejections: A Comment

31 Pages Posted: 3 May 2017

See all articles by Andrea Attar

Andrea Attar

Toulouse School of Economics; University of Roma Tor Vergata

Thomas Mariotti

University of Toulouse I

Francois Salanie

National Institute for Agricultural Research (INRA); University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: March 20, 2017

Abstract

We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013).

Keywords: Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity

JEL Classification: D43, D82, D86

Suggested Citation

Attar, Andrea and Mariotti, Thomas and Salanie, Francois, Private Information and Insurance Rejections: A Comment (March 20, 2017). CEIS Working Paper No. 403. Available at SSRN: https://ssrn.com/abstract=2961867 or http://dx.doi.org/10.2139/ssrn.2961867

Andrea Attar (Contact Author)

Toulouse School of Economics

21, allée de Brienne
Toulouse, F 31000
France
+33 5 61128578 (Phone)

University of Roma Tor Vergata ( email )

2 Via Columbia
00100 Rome
Italy

Thomas Mariotti

University of Toulouse I ( email )

Toulouse, 31000
France

Francois Salanie

National Institute for Agricultural Research (INRA) ( email )

21, Allee de Brienne
31000 Toulouse
France

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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