Advanced Search
MyIDEAS: Login

Contracts and Market: Risk Sharing with Hidden Types

Contents:

Author Info

  • Guido Maretto
Registered author(s):

    Abstract

    I study two way effects between financial markets and other contractual agreements, such as compensation packages within a firm, or mortgages and loans. I construct a model with many Units, in which one of the contracting individuals, the Agent, has private information, while the uninformed individual, the Principal, has the opportunity to trade with those in the other Units. I give general conditions under which financial markets induce a transfer of risk from Agents to Principals. These conditions boil down to a limited amount of correlation among Units' returns. Under the same conditions, I show that markets induce a transfer of welfare from the best Agents to Principals. Conversely, the information problem within firms leads to excessive aggregate risk. However, this problem vanishes in a large economy.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/76053/4/2011-005-MARETTO-contracts.pdf
    Our checks indicate that this address may not be valid because: 500 Can't connect to dipot.ulb.ac.be:443 (certificate verify failed). If this is indeed the case, please notify (Benoit Pauwels)
    Download Restriction: no

    Bibliographic Info

    Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2011-005.

    as in new window
    Length: 26 p.
    Date of creation: Feb 2011
    Date of revision:
    Publication status: Published by:
    Handle: RePEc:eca:wpaper:2013/76053

    Contact details of provider:
    Postal: Av. F.D., Roosevelt, 39, 1050 Bruxelles
    Phone: (32 2) 650 30 75
    Fax: (32 2) 650 44 75
    Web page: http://difusion.ulb.ac.be
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Legros, Patrick & Newman, Andrew, 2000. "Monotone Matching In Perfect And Imperfect Worlds," CEPR Discussion Papers 2396, C.E.P.R. Discussion Papers.
    2. William R. Zame, 2007. "Incentives, Contracts, and Markets: A General Equilibrium Theory of Firms," Econometrica, Econometric Society, vol. 75(5), pages 1453-1500, 09.
    3. Livio Stracca, 2005. "Delegated portfolio management: a survey of the theoretical literature," Working Paper Series 520, European Central Bank.
    4. Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
    5. Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R Zame, 2003. "Clubs and the Market," Levine's Working Paper Archive 618897000000000754, David K. Levine.
      • Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R. Zame, 1999. "Clubs and the Market," Econometrica, Econometric Society, vol. 67(5), pages 1185-1218, September.
    6. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-68, December.
    7. Patrick Legros & Andrew Newman, 1996. "Wealth effects, distribution, and the theory of organization," ULB Institutional Repository 2013/7036, ULB -- Universite Libre de Bruxelles.
    8. Robert Gibbons & Richard Holden & Michael Powell, 2012. "Organization and Information: Firms' Governance Choices in Rational-Expectations Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1813-1841.
    9. Nielsen, Lars Tyge, 1990. "Existence of equilibrium in CAPM," Journal of Economic Theory, Elsevier, vol. 52(1), pages 223-231, October.
    10. Michael Magill & Martine Quinzii, 2005. "An Equilibrium Model of Managerial Compensation," IEPR Working Papers 05.22, Institute of Economic Policy Research (IEPR).
    11. Dekel, Eddie, 1986. "An axiomatic characterization of preferences under uncertainty: Weakening the independence axiom," Journal of Economic Theory, Elsevier, vol. 40(2), pages 304-318, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eca:wpaper:2013/76053

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.