Competitive Equilibria with Asymmetric Information

Bisin, Alberto; Gottardi, Piero

doi:10.1006/jeth.1999.2514

Cited by 104 publications

(77 citation statements)

References 25 publications

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“…7 We have hence guessed the`fair price' equilibrium. Under standard conditions such equilibrium always exists and it is robust to the presence of asymmetric information (e.g., Bisin and Gottardi, 1999). We will disregard all technical complications associated to the fact that we have allow for a continuum of values for ; and assume that C and E are such that expectations are always well de ned.…”

Section: Full Informationmentioning

confidence: 99%

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Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

Attanasio

Pavoni

2011

Econometrica

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We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation gives rise to 'excess smoothness of consumption', as found and defined by Campbell and Deaton (1987). We argue that the evidence on excess smoothness is consistent with a violation of the simple intertemporal budget constraint considered in a Bewley economy (with a single asset) and use techniques proposed by Hansen et al. (1991) to test the intertemporal budget constraint. We also construct closed form examples where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. Evidence from the UK on the dynamic properties of consumption and income in micro data is consistent with the implications of the model.

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Section: Full Informationmentioning

confidence: 99%

“…In order to be incentive compatible, the transfer scheme must hence be invariant across x T 's. 13 Now consider the problem in period T 1: Taking into account this invariance of T from x T , the incentive compatibility constraint for e T 1 becomes (we set b T 1 = b T = 0 for expositional simplicity)…”

Section: The Ack Economy As a Foundation Of The Bewley Modelmentioning

confidence: 99%

Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

Attanasio

Pavoni

2011

Econometrica

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“…Some other artificial device would then be needed to model the strategic interdependence between the Cournot oligopolists in terms of a well specified strategic game. 6 The two approaches give rise to the following equilibrium concepts.…”

Section: Walrasian and Cournot Rational-expectations Equilibriamentioning

confidence: 99%

Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach

Hellwig

2005

Journal of Economic Theory

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The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled as Cournot monopolists or oligopolists. The other agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers' net trades. When there are many agents to share the insurance buyer's risk, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers, equilibria fail to exist or are bounded away from being second-best. Journal of Economic Literature Classification Numbers: D50, D62, D80.

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“…In contrast to the set-up considered here, the theoretical literature on principal-agent problems has studied either the case in which the agent's trades are perfectly observable (e.g., Prescott and Townsend (1984) and Bisin and Gottardi (2006)), or the case in which they are unobservable (see Allen (1985), Arnott and Stiglitz (1991), Kahn andMookherjee (1998), Pauly (1974); also Admati, Pfleiderer, and Zechner (1994), Bisin and Gottardi (1999), Bisin and Guaitoli (2004), DeMarzo (1992, 1999), Cole and Kocherlakota (2001), Park (2004)). More specifically with regard to the application to managerial incentive compensation, Jin (2002), Acharya and Bisin (2005), and Garvey and Milbourn (2003) study the case where executives can anonymously trade market indices.…”

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confidence: 99%

Managerial Hedging and Portfolio Monitoring

2004

Self Cite

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Incentive compensation induces correlation between the portfolio of managers and the cash flow of the firms they manage. This correlation exposes managers to risk and hence gives them an incentive to hedge against the poor performance of their firms. We study the agency problem between shareholders and a manager when the manager can hedge his compensation using financial markets and shareholders can monitor the manager's portfolio in order to keep him from hedging, but monitoring is costly. We find that the optimal incentive compensation and governance provisions have the following properties: (i) the manager's portfolio is monitored only when the firm performs poorly, (ii) the manager's compensation is more sensitive to firm performance when the cost of monitoring is higher or when hedging markets are more developed, and (iii) conditional on the firm's performance, the manager's compensation is lower when his portfolio is monitored, even if no hedging is revealed by monitoring. Moreover, the model suggests that the optimal level of portfolio monitoring is higher for managers of firms whose performance can be hedged more easily, such as larger firms and firms in more developed financial markets. JEL: G30, D82

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Competitive Equilibria with Asymmetric Information

Cited by 104 publications

References 25 publications

Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach

Managerial Hedging and Portfolio Monitoring

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