Models of Selection Markets

• Author / Creator

  Wu, Christopher

• Selection markets describe markets in which people strategically ``select'' into certain options based on knowledge only they possess, and in doing so may communicate some of that knowledge. Examples include sick people buying more comprehensive health insurance contracts, talented students choosing more challenging programs, and high quality goods producers offering longer warranties. These markets tend to be inefficient—sometimes to the point of total collapse. The theory of selection markets can help to diagnose issues and offer policy solutions. This thesis analyzes three theoretical problems in the theory of selection markets. The first part is a technical contribution connecting the recent Azevedo-Gottlieb model to the older reactive equilibrium model. The second part studies insurance markets with a fixed cost of providing contracts, and gives a necessary and sufficient condition under which the market will collapse. The third provides a framework for simulating selection markets with choice frictions, and constructs a model within this framework to study the ambiguous effect of rational inattention on insurance market inefficiency.

• Subjects / Keywords

  • adverse selection
  • contracts
  • competitive markets

• Graduation date

  Fall 2024

• Type of Item

  Thesis

• Degree

  Master of Science

• DOI

  https://doi.org/10.7939/r3-0ba4-an30

• License

  This thesis is made available by the University of Alberta Library with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.