Separating Equilibrium
A market outcome in which different customer types choose different contracts from a menu, revealing their private type through their choice. The Rothschild-Stiglitz model showed that in insurance markets with private information about risk, only separating equilibria can survive cream-skimming entry by competitors. The cost of separation is that the safer segment receives less coverage than it would in a full-information world -- the under-provision is the welfare loss of asymmetric information.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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