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Incentives in market games with asymmetric information: The core

  • ALLEN, Beth

    (University of Pennsylvania and CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

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    This paper examines t,he core of a pure exchange economy with asymmetric information in which staLe-dependent, allocations are required to satisfy incentive compatibility. This restriction on players' strategies in the cooperative game can be interpreted as incomplete contracts or partial commitment. An example is provided in which the incentive compatible core with nontransferable utility is empty; the game fails to be balanced bec:ause convex combinations of incentive compatible net trades can violate incent,ive compatibility. However, randomization of such strategies leads to ex post allocations which satisfy incentive compatibility and are feasible on average. Hence, convexity is preserved in such a model and the resulting cooperative games are balanced. In t,his framework, an incentive compatible core concept is defined for i\TU games derived from economies with asymmetric information. The main result is nonernptiness of the incentive compatible core.

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    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1992021.

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    Date of creation: 01 Feb 1992
    Date of revision:
    Handle: RePEc:cor:louvco:1992021
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