COALITION PROOF EQUILIBRIUM IN AN ADVERSE SELECTION INSURANCE ECONOMY

We extend the notion of Coalition Proof Nash Equilibrium to a class of matching games with private information. This solution concept is app lied to an adverse selection insurance economy and is shown to yield a unique allocation: the optimal allocation without cross-subsidy. This contrasts sharply with the outcome in alternative institutional setti ngs for negotiations among players, as modeled for instance by the Inc entive Compatible Core. Journal of Economic Literature Classification Numbers C71, C72, D82. (C) 1995 Academic Press, Inc.