32 Pages Posted: 5 Mar 2012
Date Written: 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.
Keywords: credible deviations, contract formation, cooperative games, asymmetric information
JEL Classification: C71, C73
Suggested Citation: Suggested Citation