Working Papers

"Market Structure and Adverse Selection" (JMP ) Joint with Christopher Sandmann 

This paper adopts a unified perspective on multi-contracting in competitive markets plagued by adverse selection. We subsume the two polar cases of exclusive and nonexclusive competition by introducing the concept of a market structure, i.e., a trading rule that specifies the subset of sellers buyers can jointly trade with. The existing literature shows that the market structure matters greatly in shaping competitive allocations, allowing for either separating allocations (as shown by Rothschild-Stiglitz) or layered pooling (Jaynes-Hellwig-Glosten) allocations. We prove the existence of intermediate “Pooling + Separating” equilibria that allow for simultaneous pooling and low-risk buyer separation. Crucially, those allocations alleviate at the same time the concern of excessive rationing under separation of and cross-subsidies paid by low-risk buyers. They oftentimes Pareto dominate the Rothschild-Stiglitz separating allocation. Our analysis singles out the "1+1" market structure where sellers are separated into two subgroups so that buyers can trade with at most one seller from each subgroup. Any “Pooling + Separating” allocation is an equilibrium here. Finally, we prove that “Pooling + Separating” allocations satisfy a notion of stability that we call serendipitous-aftermarket-proofness.

"Adverse Selection and Equilibrium Existence in Almost Nonexclusive Markets" (Draft available upon request)

Considering fully nonexclusive competitive markets, where privately informed buyers can trade with arbitrarily many sellers simultaneously, Attar, Mariotti, and Salanie (2014) show that JHG allocation is the unique equilibrium candidate: while low and high risk buyers are pooled for a basic layer of insurance, only the latter purchase an additional layer. They further show that this allocation equilibrium never exists.  This paper shows how their non-existence result is overturned if we impose an upper bound on the number of sellers  with whom buyers can jointly trade. Equilibrium existence requires a strong, but frequently used, assumption in the literature with quadratic or CARA utility functions: the shape of translated indifference curves are identical across types. My findings shed light on the disconnection between continuous type models (associated with existence results) and discrete type models (associated with the absence thereof). This, therefore, suggests that the choice of parametrization for utility functions matters.

"Multiple Contracting in Annuity Markets"  (Draft available upon request)

The annuity market is a special kind of insurance market in which buyers purchase contracts in the initial period and achieve the payments once they are alive in the later period. In the annuity market, there is much evidence that there exists adverse selection and the trade in this market is nonexclusive, the contracts in this market are related to multiple periods. In Attar, Mariotti, and Salanie's paper, they study nonexclusive trade in the insurance market with a static environment and find that the JHG tariff is the entry-proof tariff and the allocation implemented by it is budget balanced. In this thesis, we find that the JHG similar tariff is still entry-proof again if the indemnity of the annuity contract is the same in the market. However, if there is no restriction on indemnity, the later period‘s demand for annuity contracts may crowd out the early period’s demand for high-risk type, which leads to low-risk type consuming more annuity in the early period and JHG similar tariff is not entry-proof. We propose an optional cross-period policy for the planner to solve this problem and prove that combining JHG similar tariff with this policy makes it entry-proof again and the allocation implemented by them is budget balanced. These results are robust in multiple-period environments.

"Social Efficiency with Linear Side Trading"  (Draft available upon request)

This paper studies the trades under the assumption of nonexclusivity--- the informed buyers can purchase several contracts from different sellers or planners. The planner can monitor the trade happening with herself while the other sellers can not monitor the trade with them. This means the planner could provide any tariff to the market while others can only provide linear contracts. By using this setting, I first find out all possible entry-proof (EP) allocations for the planner. Then I rule out all EP Pareto-dominated (EPPD) allocations and find that the participation of the planner can always make the market more efficient. I also find that the Non-EPPD allocation will coincide with the second-best allocation in some cases. In this context, I discuss two environments depending on whether the planner can provide non-convex basic tariffs to the more efficient buyers.

Work in Progress

"Contract Withdrawals when Competition in not Exclusive"  joint with Andrea Attar