0
$\begingroup$

RS model suggests that (among others), in a binary setting (high/low risk) where there is an information asymmetry, if the proportion of high risks in a population is not sufficiently large, no equilibrium exists.

This, I think, is counter-intuitive. Larger number of high-risk individuals are required to establish an equilibrium, where the high risks are the reasons for the problem in the first place (at least one of the reasons).

My question is, can you think of a real-life examples parallel to this theoretical argument? Can there be a market, where the bad apples need to outnumber a critical point, so that market does not unravel?

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.