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Institutional Affiliation: Microsoft Research
NBER Working Papers and Publications
|August 2014||Imperfect Competition in Selection Markets|
with Neale Mahoney: w20411
Standard policies to correct market power and selection can be misguided when these two forces co-exist. Using a calibrated model of employer-sponsored health insurance, we show that the risk adjustment commonly used by employers to offset adverse selection often reduces the amount of high-quality coverage and thus social surplus. Conversely, in a model of subprime auto lending calibrated to Einav, Jenkins and Levin (2012), realistic levels of competition among lenders generate a significant oversupply of credit, implying greater market power is desirable. We build a model of symmetric imperfect competition in selection markets that parameterizes the degree of both market power and selection and use graphical price-theoretic reasoning to provide a general analysis of the interaction betwee...
Published: Neale Mahoney & E. Glen Weyl, 2017. "Imperfect Competition in Selection Markets," The Review of Economics and Statistics, vol 99(4), pages 637-651.