Adverse Selection, Heterogeneous Beliefs, and Evolutionary Learning

Alberto Palermo and Clemens Buchen
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Alberto Palermo: Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University
Clemens Buchen: WHU – Otto Beisheim School of Management

No 202103, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: We relax the common assumption of homogeneous beliefs in principal-agent relationships with adverse selection. Principals are competitors in the product market and write contracts also on the base of an expected aggregate. The model is a version of a cobweb model. In an evolutionary learning set-up, which is imitative, principals can have different beliefs about the distribution of agents' types in the population. The resulting nonlinear dynamic system is studied. Convergence to a uniform belief depends on the relative size of the bias in beliefs.

Keywords: Evolutionary game theory; imitation equilibrium; heterogeneous beliefs; adverse selection; cobweb model (search for similar items in EconPapers)
JEL-codes: C61 C73 D82 D83 E32 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-evo, nep-gth, nep-isf and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:iaa:dpaper:202103

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