A "coalition proof" equilibrium for a private information credit economy
This paper examines an economy in which agents with private information about their own productive capabilities seek to raise capital to fund their investment projects. We employ an equilibrium concept which is closely related to Coalition Proof Nash Equilibrium. In equilibrium, all agents who succeed in raising capital (entrepreneurs) are pooled; they all receive the same contract or consumption schedule. Entrepreneurs, however, are separated from those who fail to raise capital. This separation results in productive efficiency for the economy. If the economy has no viable alternative investment opportunity (other than agents' projects) then equilibrium allocations can be supported by a (non-intermediated) securities market. If there is a viable alternative, the equilibrium allocations can only be supported through the formation of a form of financial intermediary coalition. ; A preliminary draft of this paper was presented at the 1990 meeting of the WEA. We would like to thank Paul Fisher for his comments on that earlier draft. We have also benefited from extensive discussions with Charles Kahn. His comments, and those of Nicholas Yannelis and other participants in the University of Illinois Microeconomic Theory workshop and the Purdue Macroeconomics workshop are greatly appreciated. As the authors retain mutual responsibility for all errors, past, present and future, comments continue to be appreciated. The views expressed are those of the authors and do not represent the views of the Federal Reserve Bank of Richmond or the Federal Reserve Board.
|Date of creation:||1990|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.richmondfed.org/|
More information through EDIRC
|Order Information:|| Web: http://www.richmondfed.org/publications/ Email: |
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.:
- Boyd, John H. & Prescott, Edward C., 1986.
Journal of Economic Theory,
Elsevier, vol. 38(2), pages 211-232, April.
- Greenberg, Joseph, 1989. "Deriving strong and coalition-proof nash equilibria from an abstract system," Journal of Economic Theory, Elsevier, vol. 49(1), pages 195-202, October.
- John H. Boyd & Edward C. Prescott & Bruce D. Smith, 1988.
"Organizations in Economic Analysis,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 21(3), pages 477-91, August.
- Edward C Prescott & Robert M Townsend, 2010.
"Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard,"
Levine's Working Paper Archive
2069, David K. Levine.
- Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
- Holmstrom, Bengt & Myerson, Roger B, 1983.
"Efficient and Durable Decision Rules with Incomplete Information,"
Econometric Society, vol. 51(6), pages 1799-819, November.
- Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
- Kahn, C.M. & Mookherjee, D., 1990. "The Good The Bad, And The Ugly: Coalition Proof Equilibrium In Ganes With Infinite Strastegiy Spaces," University of Chicago - Economics Research Center 90-2, Chicago - Economics Research Center.
When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:90-08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Pascasio)
If references are entirely missing, you can add them using this form.