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Optimal Financial Structure in Exchange Economies

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  • Haubrich, Joseph G

Abstract

This paper examines the financial arrangements that arise in a simple exchange economy with private information. It uses contr act theory to consider the optimal structures under varying informati onal restrictions. Relative to previous work, it expands the strategy sets of agents, allowing both coalitions and contrived uncertainty ( lotteries). The paper spells out how different information structures lead to different constraints (resource, incentive compatibility, mu ltilateral incentive compatibility) upon the problem, and thus to dif ferent financial contracts (insurance, intermediaries, ex post market s). Multilateral incentive compatibility emerges as particularly powe rful in determining the nature of financial contracts. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 29 (1988)
Issue (Month): 2 (May)
Pages: 217-35

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Handle: RePEc:ier:iecrev:v:29:y:1988:i:2:p:217-35

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Cited by:
  1. Pamela Labadie, 2008. "Retrading in Competitive Equilibria with Adverse Selection," 2008 Meeting Papers 838, Society for Economic Dynamics.
  2. Karl Shell & James Peck, 2004. "Bank Portfolio Restrictions and Equilibrium Bank Runs," 2004 Meeting Papers 359, Society for Economic Dynamics.
  3. Cooper, Russell & Ross, Thomas W., 1998. "Bank runs: Liquidity costs and investment distortions," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 27-38, February.
  4. Labadie, Pamela, 2009. "Anonymity and individual risk," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2440-2453, November.
  5. Joseph G. Haubrich, 1992. "Sluggish deposit rates: endogenous institutions and aggregate fluctuations," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 23-35.
  6. William P. Osterberg, 1992. "Intervention and the bid-ask spread in G-3 foreign exchange rates," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-13.
  7. Peter J. Hammond, . "Multilaterally Strategy-Proof Mechanisms in Random Aumann--Hildenbrand Macroeconomies," Working Papers 97022, Stanford University, Department of Economics.
  8. Peck, James & Shell, Karl, 2010. "Could making banks hold only liquid assets induce bank runs?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 420-427, May.
  9. Pamela Labadie, 2007. "Anonymity and Individual Risk," 2007 Meeting Papers 637, Society for Economic Dynamics.

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