A note on the convergence to competitive equilibria in economies with moral hazard

Alberto Bisin, Piero Gottardi and Danilo Guaitoli

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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.

Keywords: Asymmetric information; exclusivity; competitive equilibrium (search for similar items in EconPapers)
JEL-codes: D50 D82 (search for similar items in EconPapers)
Date: 1998-12
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: A Note on the Convergence to Competitive Equilibria in Economies with Moral Hazard (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:381

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