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Extreme Adverse Selection, Competitive Pricing, and Market Breakdown

Mailath, George J. and Nöldeke, Georg. (2006) Extreme Adverse Selection, Competitive Pricing, and Market Breakdown. WWZ Discussion Papers, 2006 (09).

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Official URL: https://edoc.unibas.ch/61249/

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Abstract

Extreme adverse selection arises when private information has unbounded NEWLINE support, and market breakdown occurs when no trade is the only equilibrium NEWLINE outcome. We study extreme adverse selection via the limit behavior of a NEWLINE financial market as the support of private information converges to an unbounded NEWLINE support. A necessary and sufficient condition for market breakdown is obtained. If NEWLINE the condition fails, then there exists competitive market behavior that converges to NEWLINE positive levels of trade whenever it is first best to have trade. When the condition NEWLINE fails, no feasible (competitive or not) market behavior converges to positive levels NEWLINE of trade.
Faculties and Departments:06 Faculty of Business and Economics
06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Nöldeke, Georg
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:47
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2006/09
Last Modified:14 Mar 2018 09:43
Deposited On:07 Mar 2018 11:34

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