A Coalition Proof Equilibrium for a Private Information Credit Economy
AbstractThis paper examines an economy in which agents with private information about their own productive capabilities seek to raise capital to fund their investment projects. We employ an equilibrium concept which is closely related to Coalition Proof Nash Equilibrium. In equilibrium, all agents who succeed in raising capital (entrepreneurs) are pooled; they all receive the same contract or consumption schedule. Entrepreneurs, however, are separated from those who fail to raise capital. This separation results in productive efficiency for the economy. If the economy has no viable alternative investment opportunity (other than agents' projects) then equilibrium allocations can be supported by a (non-intermediated) securities market. If there is a viable alternative, the equilibrium allocations cannot be supported by a securities market equilibrium. We interpret this case as suggesting the emergence of financial intermediary coalitions.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 3 (1993)
Issue (Month): 2 (April)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Jeffrey M. Lacker & John A. Weinberg, 1990. "A "coalition proof" equilibrium for a private information credit economy," Working Paper, Federal Reserve Bank of Richmond 90-08, Federal Reserve Bank of Richmond.
- Lacker, J.M. & Weinberg, J.A., 1990. "A "Coalition Proof" Equilibrium For A Private Information Credit Economy," Purdue University Economics Working Papers 994, Purdue University, Department of Economics.
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