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on Contract Theory and Applications |
| By: | Herves-Beloso, Carlos; Meo, Claudia; Moreno Garcia, Emma |
| Abstract: | In a scenario with a continuum of asymmetrically informed agents, we analyze how the initial information of a trader may be altered when she becomes a member of a coalition. In contrast to a perfect competition frame, we first show that neither arbitrarily small coalitions nor large coalitions are enough to block an allocation which is not in the core, due to the market failure produced by asymmetric information. However, under mild assumptions, we extend the characterizations of the core provided by Vind and Schmeidler (1972) to economies with asymmetrically informed traders. We then focus on information sharing rules based on the coalitions' size. Assuming the existence of coalitions to which the sharing rule associates an information finer than all the others, we show that the corresponding cores coincide with the one defined by this finest information. Finally, characterizations for the weak fine, the fine and the private core are obtained as particular cases of this equivalence theorem. |
| Keywords: | Coalitions; asymmetric information economies; information sharing; blocking mechanisms; core. |
| JEL: | D71 C02 D82 D51 |
| Date: | 2011–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30258&r=cta |
| By: | Coco, Giuseppe (Department of Economics, University of Bari); Pignataro, Giuseppe (Department of Economics, University of Bologna) |
| Abstract: | Credit market imperfections can prevent the poor from making pro table investments. Under asymmetric information observable features, such as wealth and collateral, play an important role in determining who gets credit, in violation of the Equality of Opportunity principle. We de ne equality of opportunity as the equal possibility of getting credit for a given aversion to e¤ort. We rst establish that, due to larger cross subsidization in high collateral classes of borrowers, richer individuals are more likely to get credit for a given aversion to e¤ort. Our second result is that Inequality of Opportunity is associated with an ine¢ cient allocation of resources among classes of borrowers. The marginal borrower in classes that post more collateral exerts less e¤ort in equilibrium (and therefore produces lower aggregate surplus) than the marginal borrower in lower collateral classes. This suggests that public credit policies should be targeted at poorer classes of would be borrowers both for equity and e¢ ciency reasons, which rarely occurs in practice. |
| Keywords: | equality of opportunity; credit; moral hazard; cross subsidization; collateral. |
| JEL: | D63 D80 H80 |
| Date: | 2010–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:demqwp:2010_005&r=cta |
| By: | Rosa-García, Alfonso; Kiss, Hubert Janos |
| Abstract: | We study a coordination problem where agents act sequentially. Agents are embedded in an observation network that allows them to observe the actions of their neighbors. We find that coordination failures do not occur if there exists a sufficiently large clique. Its existence is necessary and sufficient when agents are homogenous and sufficient when agents differ and their types are private. Other structures guarantee coordination when agents decide in some particular sequences or for particular payoffs. The coordination problem embodied in our game is applied to the problems of revolts and bank runs. |
| Keywords: | social networks; coordination failures; multiple equilibria; revolts; bank runs |
| JEL: | D82 D85 C72 |
| Date: | 2011–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30463&r=cta |
| By: | Pierre Courtois; Tarik Tazdaït |
| Abstract: | What if living in a relatively trustworthy society was sufficient to blindly trust strangers? In this paper we interpret generalized trust as a learning process and analyse the trust game paradox in light of the replicator dynamics. Given that trust inevitably implies doubts about others, we assume incomplete information and study the dynamics of trust in buyer-supplier purchase transactions. Considering a world made of “good” and “bad” suppliers, we show that the trust game admits a unique evolutionarily stable strategy: buyers may trust strangers if, on the whole, it is not too risky to do so. Examining the situation where some players may play, either as trustor or as trustee, we show that this result is robust. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:11-06&r=cta |