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Information extraction and norms of mutual protection

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  • Bisin, Alberto
  • Guaitoli, Danilo

Abstract

We study a class of moral hazard economies in which a principal interacts with several agents. In these economies first best allocations can be implemented via full information extraction when side-trades between agents can be restricted. When instead side-trades cannot be restricted, the ability of the principal to extract information from the agents is severely hampered. In this context, side-trades take the form of informal contracts which can be directly interpreted as norms of mutual protection, which are indeed quite common among extended family members as well as inside various social, political, and religious groups.

Suggested Citation

  • Bisin, Alberto & Guaitoli, Danilo, 2012. "Information extraction and norms of mutual protection," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 154-162.
    • Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:154-162
    DOI: 10.1016/j.jebo.2012.07.012
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    References listed on IDEAS

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    1. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
    2. Alberto Bisin & Piero Gottardi & Adriano A. Rampini, 2008. "Managerial Hedging and Portfolio Monitoring," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 158-209, March.
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