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Incentives in market games with asymmetric information: The core

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  • ALLEN, Beth

    (University of Pennsylvania and CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

Abstract

This paper examines t,he core of a pure exchange economy with asymmetric information in which staLe-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 bec:ause convex combinations of incentive compatible net trades can violate incent,ive 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 t,his framework, an incentive compatible core concept is defined for i\TU games derived from economies with asymmetric information. The main result is nonernptiness of the incentive compatible core.

Suggested Citation

  • ALLEN, Beth, 1992. "Incentives in market games with asymmetric information: The core," LIDAM Discussion Papers CORE 1992021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1992021
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1992.html
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    Citations

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    Cited by:

    1. Lee, Darin & Volij, Oscar, 2002. "The core of economies with asymmetric information: an axiomatic approach," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 43-63, September.
    2. Forges, Francoise & Minelli, Enrico, 2001. "A Note on the Incentive Compatible Core," Journal of Economic Theory, Elsevier, vol. 98(1), pages 179-188, May.
    3. 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.
    4. Forges, Francoise & Minelli, Enrico & Vohra, Rajiv, 2002. "Incentives and the core of an exchange economy: a survey," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 1-41, September.
    5. Gaël Giraud & Céline Rochon, 2003. "Generic efficiency and collusion-proofness in exchange economies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 20(3), pages 405-428, June.
    6. Francoise Forges & Jean-Francois Mertens & Rajiv Vohra, 2002. "The Ex Ante Incentive Compatible Core in the Absence of Wealth Effects," Econometrica, Econometric Society, vol. 70(5), pages 1865-1892, September.
    7. Dutta, Bhaskar & Vohra, Rajiv, 2005. "Incomplete information, credibility and the core," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 148-165, September.
    8. repec:dau:papers:123456789/5454 is not listed on IDEAS
    9. Beth Allen, 1996. "Cooperative theory with incomplete information," Staff Report 225, Federal Reserve Bank of Minneapolis.

    More about this item

    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
    • D79 - Microeconomics - - Analysis of Collective Decision-Making - - - Other

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