This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz. We extend the game-theoretic structure in Hellwig to a mechanism in which the Miyazaki-Wilson-Spence allocation is the unique perfect-Bayesian equilibrium. As is well-known, this allocation...

We consider a model of competitive insurance markets under asymmetric information with ambiguity-averse agents who maximize their maxmin expected utility. The interaction between asymmetric information and ambiguity aversion gives rise to some interesting results. First, for some parameter...

Short-term corporate debt as a proportion of total debt issued by public firms varies greatly across countries, between 28% in the U.S. and 78% in China. This paper argues that the interaction between information asymmetry and legal protection of creditors is an important determinant of debt...

We consider a model of competitive insurance markets involving both asymmetric information and ambiguity about the accident probability. We show that there can exist a full-insurance pooling equilibrium. We also present an example where an increase in ambiguity leads to a strict Pareto...

We consider a model of competitive insurance markets under asymmetric information with ambiguity-averse agents who maximize their maxmin expected utility. The interaction between asymmetric information and ambiguity aversion gives rise to some interesting results. First, for some parameter...

We show that in the limited-commitment framework of Donaldson, Gromb and Piacentino (2019), firm value always increases in the fraction of cash flows that can be pledged as collateral. That is, pledgeability increases investment efficiency and relaxes a firm's financing constraint. We derive...

We analyze competitive credit markets with asymmetric information in which borrowers seek financing for either positive or negative net present value projects. The striking result is that there always exists an equilibrium where investment is efficient, while competitive lenders make strictly...

Competitive models of asymmetric information predict a positive relationship between coverage and risk. In contrast, most recent empirical studies find either negative or zero correlation. This paper, by introducing heterogeneity in risk perceptions into an asymmetric information competitive...