Competitive equilibrium with type convergence in an asymmetrically informed market

This article studies an asymmetric information game with 'typeconvergence', in which, under some realizations of a commonuncertainty, inducing informed agents to reveal their typesthrough self-selection by contract choice is either costly orimpossible. Under other realizations, self-selection permitscostless distinctions between informed agents. I obtain sufficientconditions under which contracting with options prior to therealization of the common uncertainty leads to the existenceof a perfectly separating, costless Nash equilibrium. Applicationsto variable rate loan commitments and life insurance contractingare discussed.