Endogenous groups and dynamic selection in mechanism design
We create a dynamic theory of endogenous risk sharing groups, with good internal information, and their coexistence with relative performance, individualistic regimes, which are informationally more opaque. Inequality and organizational form are determined simultaneously. Numerical techniques and succinct reformulations of mechanism design problems with suitable choice of promised utilities allow the computation of a stochastic steady state and its transitions. Regions of low inequality and moderate to high wealth (utility promises) produce the relative performance regime, while regions of high inequality and low wealth produce the risk sharing group regime. If there is a cost to prevent coalitions, risk sharing groups emerge at high wealth levels also. Transitions from the relative performance regime to the group regime tend to occur when rewards to observed outputs exacerbate inequality, while transitions from the group regime to the relative performance regime tend to come with a decrease in utility promises. Some regions of inequality and wealth deliver long term persistence of organization form and inequality, while other regions deliver high levels of volatility.
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.:
- Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, vol. 60(2), pages 410-427, August.
- Ahlin, Christian & Townsend, Robert M., 2007.
"Selection into and across credit contracts: Theory and field research,"
Journal of Econometrics,
Elsevier, vol. 136(2), pages 665-698, February.
- Christian Ahlin & Robert Townsend, 2003. "Selection into and across Credit Contracts: Theory and Field Research," Vanderbilt University Department of Economics Working Papers 0323, Vanderbilt University Department of Economics.
- Mueller, Rolf A.E. & Prescott, Edward S. & Sumner, Daniel A., 2002. "Hired hooves: Transactions in a south Indian village factor market," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(2), June.
- Christopher Phelan & Robert M. Townsend, 1991. "Computing Multi-Period, Information-Constrained Optima," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 853-881.
- Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August.
- Pramila Krishnan & Stefan Dercon, 1997. "In sickness and in health ... risk-sharing within households in rural Ethiopia," CSAE Working Paper Series 1997-12, Centre for the Study of African Economies, University of Oxford.
- Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
- Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-457, August.
- Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 427-453.
- Andrew Atkeson & Robert E Lucas, 2010. "On Efficient Distribution with Private Information," Levine's Working Paper Archive 2179, David K. Levine.
- Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
- Robert M. Townsend, "undated". "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
- Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
- Jackson, Matthew O. & Watts, Alison, 2010. "Social games: Matching and the play of finitely repeated games," Games and Economic Behavior, Elsevier, vol. 70(1), pages 170-191, September.
- Matthew O. Jackson & Alison Watts, 2005. "Social Games: Matching and the Play of Finitely Repeated Games," Working Papers 2005.38, Fondazione Eni Enrico Mattei.
- Matthew O. Jackson & Alison Watts, 2005. "Social Games: Matching and the Play of Finitely Repeated Games," Game Theory and Information 0503003, EconWPA.
- Jackson, Matthew O. & Watts, Alison, 2005. "Social Games: Matching and the play of finitely repeated games," Working Papers 1212, California Institute of Technology, Division of the Humanities and Social Sciences.
- Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
- Marcel Fafchamps & Susan Lund, "undated". "Risk Sharing Networks in Rural Philippines," Working Papers 97014, Stanford University, Department of Economics.
- Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers 10, University of Oxford, Department of Economics.
- Mills, David C., 2007. "A Model In Which Outside And Inside Money Are Essential," Macroeconomic Dynamics, Cambridge University Press, vol. 11(03), pages 347-366, June.
- David C. Mills, 2006. "A model in which outside and inside money are essential," Finance and Economics Discussion Series 2006-38, Board of Governors of the Federal Reserve System (U.S.).
- Phelan, Christopher, 1998. "On the Long Run Implications of Repeated Moral Hazard," Journal of Economic Theory, Elsevier, vol. 79(2), pages 174-191, April.
- Robert Townsend & Rolf Mueller, 1998. "Mechanism Design and Village Economies: From Credit, to Tenancy, to Cropping Groups," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 119-172, January.
- Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
- Murgai, Rinku & Winters, Paul & Sadoulet, Elisabeth & Janvry, Alain de, 2002. "Localized and incomplete mutual insurance," Journal of Development Economics, Elsevier, vol. 67(2), pages 245-274, April.
- de Janvry, Alain & Sadoulet, Elisabeth & Winters, Paul C. & Murgai, Rinku, 2000. "Localized and Incomplete Mutual Insurance," Working Papers 12905, University of New England, School of Economics.
- Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
- Prescott, Edward Simpson & Townsend, Robert M., 2002. "Collective Organizations versus Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard," Journal of Economic Theory, Elsevier, vol. 103(2), pages 282-310, April. Full references (including those not matched with items on IDEAS)