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A Note on the Convergence to Competitive Equilibria in Economies with Moral Hazard

Author Info

  • Bisin, Alberto
  • Gottardi, P.
  • Guaitoli, D.

Abstract

We examine the conditions under which competitive equilibria can be obtained as the limit, when the number of strategic traders gets large, of Nash equilibria in economies with asymmetric information on agents' effort and possibly imperfect observability of agents' trades. Convergence always occur when either effort is publicly observed (no matter what is the information available to intermediaries on agents' trades); or effort is private information but agents' trades are perfectly observed; or no information at all is available on agents' trades. On the other hand, when each intermediary can observe its trades with an agent, but not the agent's trades with other intermediaries, the (Nash) equilibria with strategic intermediaries do not converge to any of the competitive equilibria, for an open set of economies. The source of the difficulties for convergence is the combination of asymmetric information and the restrictions on the observability of trades which prevent the formation of exclusive contractual relationships and generate barriers to entry in the markets for contracts.

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File URL: http://econ.as.nyu.edu/docs/IO/9381/RR98-41.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 98-41.

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Length: 35 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:cvs:starer:98-41
Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.htmlEmail:


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Order Information: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Keywords: asymmetric information; exclusivity; convergence;

Other versions of this item:

Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
  • G20 - Financial Economics - - Financial Institutions and Services - - - General

References listed on IDEAS
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  1. Biais, Bruno & Martimort, David & Rochet, Jean-Charles, 1998. "Competing Mechanisms in a Commun Value Environment," IDEI Working Papers 75, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Herakles Polemarchakis, 2010. "Markets and contracts," Economics Working Papers ECO2010/29, European University Institute.
    • Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Heracles Polemarchakis, 2009. "Markets and Contracts," Working Papers 0915, University of Brescia, Department of Economics.
  3. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July.
  4. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 229-55, April.
  5. Pradeep Dubey & John Geanakoplos & Martin Shubik, 1988. "Default and Efficiency in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 879R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1989.
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Cited by:

  1. Roozbeh Hosseini, 2008. "Adverse Selection in the Annuity Market and the Role for Social Security," 2008 Meeting Papers 264, Society for Economic Dynamics.

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