<p>I checked online for a question similar to this but was unable to find one.  I understand the concept of pooling and separating equilibrium and can apply it to labourers having different qualities of work but how can it be applied to the market for lemons with signalling through warranty?
Also, is there a connection between separating / pooling equilibrium and participation / self-selection constraint?  I know one is related to signalling and the other to incentives from reading Hal Varians Micro book.  But is there more?</p>
<p>For example lemons are worth 20 to consumer and 10 to producer and peaches are worth 60 to consumer and 50 to producer.  Suppose a 50-50 split.  This means the expected value to consumers is 40.  The pooling equilibrium means all cars would be sold at the same value and the consumer will purchase at a maximum of 40 so only lemons will be sold.  How would I find the separating equilibrium for a warranty priced at w?</p>
<p>Is it solved like this?
60-w &gt; 20   peaches under warranty
20 &gt; 60-w   lemons not under warranty</p>
<p>Is solving the pooling vs separating equilibrium different from solving the participating vs self selection constraint?</p>
<p>Thank you in advance for any help.</p>

<microeconomics><game-theory>
market for lemons with signals - equilibriums vs constraints
raccoon
# market for lemons with signals - equilibriums vs constraints

(Asked by: username_0 on 2020-07-26)

I checked online for a question similar to this but was unable to find one. I understand the concept of pooling and separating equilibrium and can apply it to labourers having different qualities of work but how can it be applied to the market for lemons with signalling through warranty?
Also, is there a connection between separating / pooling equilibrium and participation / self-selection constraint? I know one is related to signalling and the other to incentives from reading Hal Varians Micro book. But is there more?

For example lemons are worth 20 to consumer and 10 to producer and peaches are worth 60 to consumer and 50 to producer. Suppose a 50-50 split. This means the expected value to consumers is 40. The pooling equilibrium means all cars would be sold at the same value and the consumer will purchase at a maximum of 40 so only lemons will be sold. How would I find the separating equilibrium for a warranty priced at w?

Is it solved like this?
60-w > 20 peaches under warranty
20 > 60-w lemons not under warranty

Is solving the pooling vs separating equilibrium different from solving the participating vs self selection constraint?

Thank you in advance for any help.

**Tags:** microeconomics, game-theory

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## 0 answers

