Incentive Efficient Risk Sharing in Settlement Mechanism

Hiroshi Fujiki, Edward Green and Akira Yamazaki
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Akira Yamazaki: Meisei University

No 3, Discussion Papers from Meisei University, School of Economics

Abstract: The purpose of this paper is to address a question concerning risk management in continuing, multi-party, contractual, clearing and settlement arrangements through which large-value payments are typically made. We are particularly interested in the issues of incentive compatibility when a third party possesses a private information concerning the riskiness of transfers being made. If a third party possesses private information that would be of value in determining how best to settle a payment, how does the exposure of that party to the settlement risk affect the quality of information that the party chooses to provide? In this paper, we address these questions by analyzing a specific class of parametric environments of a schematic, formal, model of a settlement arrangement or a payment network.

Pages: 20 pages
Date: 2007-01
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Related works:
Journal Article: Incentive efficient risk sharing in a settlement mechanism (2008)
Working Paper: Incentive Efficient Risk Sharing in Settlement Mechanism (2001)
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