Information, Uncertainty and the Core
R. R. Routledge
University of Liverpool
March 3, 2012
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
Date posted: March 5, 2012
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