Information, Uncertainty and the Core

Abstract:     
How are contracts formed when agents face uncertainty, have asymmetric information and cannot write binding agreements? In this paper we propose a solution to this problem. Agents can discuss state-contingent allocations but cannot write binding contracts. At any stage in the contract formation phase a coalition of agents can deviate and choose to form agreements amongst themselves. However, we restrict these deviations to be credible: meaning that no sub-coalition has a further credible deviation. In this context, we propose the coarse and fine weak sequential cores as solution concepts and sufficient conditions for the non-emptiness of these solution concepts are provided.

Number of Pages in PDF File: 32

Keywords: credible deviations, contract formation, cooperative games, asymmetric information

JEL Classification: C71, C73

working papers series