The Core of a Production Economy with Asymmetric Information

Ulrich Schwalbe

Metroeconomica, 2003, vol. 54, issue 4, 385-403

Abstract: The paper analyses the core of a production economy with asymmetric information. Due to the incompleteness of information the transactions an agent can make are restricted. However, if the agent joins a coalition, his information changes according to an exogenously given information rule. The production possibilities of a coalition are described by a technology set and information that the coalition can employ in production. This information depends on the information of the coalition members and is also described by an information rule. Given that the technology sets satisfy some regularity conditions, a production economy with asymmetric information generates a well‐defined cooperative game. It is shown that the core of this game and thus the core of the underlying economy is non‐empty provided that the technology sets satisfy a balancedness condition. This result holds independently of the given information rules.

Date: 2003
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