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Inducing agents to report hidden trades: a theory of an intermediary

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  • Yaron Leitner

Abstract

When contracts are unobserved, agents may have the incentive to promise the same asset to multiple counterparties and subsequently default. The author constructs an optimal mechanism that induces agents to reveal all their trades voluntarily. The mechanism allows agents to report every contract they enter, and it makes public the names of agents who have reached some prespecified position limit. In some cases, an agent's position limit must be higher than the number of contracts he enters in equilibrium. The mechanism has some features of a clearinghouse. ; Superseded by Working Paper 10/28R ; Supersedes Working Paper 05-12/R

Suggested Citation

  • Yaron Leitner, 2009. "Inducing agents to report hidden trades: a theory of an intermediary," Working Papers 09-10, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:09-10
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2010/wp10-28R.pdf
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    References listed on IDEAS

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    Cited by:

    1. Cyril Monnet, 2010. "Let's make it clear: how central counterparties save(d) the day," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-10.
    2. Acharya, Viral & Bisin, Alberto, 2014. "Counterparty risk externality: Centralized versus over-the-counter markets," Journal of Economic Theory, Elsevier, vol. 149(C), pages 153-182.

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