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Pooling Equilibrium (pooling + equilibrium)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Welfare-improving adverse selection in credit markets,

INTERNATIONAL ECONOMIC REVIEW, Issue 4 2002
James Vercammen
A model of simultaneous adverse selection and moral hazard in a competitive credit market is developed and used to show that aggregate borrower welfare may be higher in the combined case than in the moral-hazard-only case. Adverse selection can be welfare improving because in the pooling equilibrium of the combined model, high-quality borrowers cross subsidize low-quality borrowers. The cross subsidization reduces the overall moral hazard effort effects, and the resulting gain in welfare may more than offset the welfare loss stemming from distorted investment choices. The analysis focuses on pooling equilibria because model structure precludes separating equilibria. [source]

Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms

JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 2 2010
Lingfang (Ivy) LiArticle first published online: 13 MAY 2010
Reputation systems constitute an important institution, helping sustain trust in online auction markets. However, only half of buyers leave feedback after transactions, and nearly all feedback is positive. In this paper, I propose a mechanism whereby sellers can provide rebates (not necessarily in monetary form) to buyers contingent upon buyers' provision of reports. Using a game theoretical model, I show how the mechanism can increase unbiased reporting. There exists a pooling equilibrium where both good and bad sellers choose the rebate option, even though their true types are revealed through feedback. The mechanism also induces bad sellers to improve the quality of the contract. [source]

Time Deductibles as Screening Devices: Competitive Markets

JOURNAL OF RISK AND INSURANCE, Issue 2 2009
Jaap Spreeuw
Seminal papers on asymmetric information in competitive insurance markets, analyzing the monetary deductible as a screening device, show that any existing equilibrium is of a separating type. High risks buy complete insurance, whereas low risks buy partial insurance,and this result holds for the Nash behavior as well as for the Wilson foresight. In this article, we analyze the strength of screening based on limitations to the period of coverage of the contract. We show that in this case (1) the Nash equilibrium may entail low risks not purchasing any insurance at all, and (2) under the Wilson foresight, a pooling equilibrium may exist. [source]