Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 1987, Volume 55, Issue 2

Market Equilibrium with Hidden Knowledge and Self-Selection<425:MEWHKA>2.0.CO;2-X
p. 425-439

Luis Fernandez, Maxim Engers

The problems of the existence of a competitive equilibrium in models with hidden knowledge and self-selection are well-known (Rothschild and Stiglitz (1976), Wilson (1977), Riley (1979). Recent analyses of such models argue for a particular outcome--the Pareto-dominant separating, zero-profit one (Cho and Kreps (1986), Riley (1985)). We prove the existence of such an outcome under very general conditions; and, generalizing the reactive equilibrium concept introduced by Riley (1979), we prove this outcome is the unique reactive equilibrium. This paper also introduces the strong equilibrium--the largest set of offers each of which at least breaks even on all who accept--which provides a direct and general proof of the existence of a unique reactive equilibrium.

Log In To View Full Content

Journal News