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Multilateral Contracting with Manipulation

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  • Yair Antler

Abstract

We study multi-lateral risk sharing when the state of nature is unverifiable, so that contracts are conditioned on a state-dependent signal (e.g., net earnings in a financial report). A subset of the agents can manipulate the signal’s realisation at some cost and, as a result, Pareto-optimal reallocation of risk is precluded. The agents can write additional side contracts that can be used to incentivise one of the parties to manipulate the signal. Using a novel stability notion that takes into account agents’ beliefs about contemporaneous deviations initiated by their counterparties, we explore the limits of risk sharing and risk bearing.

Suggested Citation

  • Yair Antler, 2021. "Multilateral Contracting with Manipulation," The Economic Journal, Royal Economic Society, vol. 131(639), pages 2693-2725.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:639:p:2693-2725.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab013
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