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Equilibrium and Adverse Selection

Colin Rose
Organization: Theoretical Research Institute
Journal / Anthology

RAND Journal of Economics
Year: 1993
Volume: 24
Issue: 4
Page range: 559-569

The nature of equilibrium in markets with adverse selection evoked considerable interest following George Akerlof's seminal article on the market for lemons. Akerlof argued that markets with adverse selection may yield no equilibrium. Charles Wilson has subsequently argued that multiple equilibria may result. In this article it is shown that if the distribution of quality follows some standard distribution, then a unique equilbrium will result.

*Business and Economics