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Incentives in market games with asymmetric information: the core

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  • Beth Allen

Abstract

This paper examines the ex ante core of a pure exchange economy with asymmetric information in which state-dependent allocations are required to satisfy incentive compatibility. This restriction on players' strategies in the cooperative game can be interpreted as incomplete contracts or partial commitment. An example is provided in which the incentive compatible core with nontransferable utility is empty; the game fails to be balanced because convex combinations of incentive compatible net trades can violate incentive compatibility. However, randomization of such strategies leads to ex post allocations which satisfy incentive compatibility and are feasible on average. Hence, convexity is preserved in such a model and the resulting cooperative games are balanced. In this framework, an incentive compatible core concept is defined for NTU games derived from economies with asymmetric information. The main result is nonemptiness of the incentive compatible core. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Beth Allen, 2003. "Incentives in market games with asymmetric information: the core," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 527-544, March.
    • Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:527-544
    DOI: 10.1007/s00199-002-0309-4
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    Citations

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    Cited by:

    1. João Correia-da-Silva, 2015. "Two-period economies with price-contingent deliveries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 509-525, August.
    2. Emma Moreno-García & Juan Pablo Torres-Martínez, 2020. "Information within coalitions: risk and ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 125-147, February.
    3. Jonathan Newton, 2019. "Agency Equilibrium," Games, MDPI, vol. 10(1), pages 1-15, March.
    4. Beth Allen, 2006. "Market games with asymmetric information: the core," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 465-487, October.
    5. Sun, Yeneng & Yannelis, Nicholas C., 2007. "Core, equilibria and incentives in large asymmetric information economies," Games and Economic Behavior, Elsevier, vol. 61(1), pages 131-155, October.

    More about this item

    Keywords

    Keywords and Phrases: Incentive compatability; Core; NTU cooperative games; General equilibrium with asymmetric information; Balancedness.; JEL Classification Numbers: D82; D71; D51; D79.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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