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)...

In this paper we explore the possibility that individuals may select insurance coverage in part based on their anticipated behavioral response to the insurance contract. Such "selection on moral hazard" can have important implications for attempts to combat either selection or moral hazard. We...

The performance of markets with hidden information is of central importance in microeconomic theory. We present the results of a comprehensive experiment that distinguishes between the two fundamental forms of hidden information, private and common values, in different contracting environments....

This paper extends Ghatak (1999)'s base model of group lending with asymmetric information by allowing individuals to differ both in their exogenous risk type and in their endogenous effort level. We find that joint liability leads to positive assortative matching in both a non-cooperative and a...

This review article, which was solicited by the Geneva Risk and Insurance Review, surveys work that has been done using an empirical framework for analyzing selection in insurance markets developed by Einav, Finkelstein, and Cullen (2010). We briefly review that framework, and then describe a...

We extend the seminal Rothschild and Stiglitz (1976) model on competitive insurance markets with asymmetric information in the spirit of Wilson (1977)’s ‘anticipatory equilibrium’ by introducing an additional stage in which initial contracts can be withdrawn after observation of...