scholarly journals When Are Local Incentive Constraints Sufficient?

Econometrica ◽  
2012 ◽  
Vol 80 (2) ◽  
pp. 661-686 ◽  
Keyword(s):  
Incentive Constraints

scholarly journals Variation margins, fires sales, and information-constrained optimality

2020 ◽  
Author(s):  
Bruno Biais ◽  
Florian Heider ◽  
Marie Hoerova
Keyword(s):  
Moral Hazard ◽  
Risk Sharing ◽  
Asset Prices ◽  
Counterparty Risk ◽  
Fire Sales ◽  
Risk Protection ◽  
Incentive Constraints

Abstract In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counterparty risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and reduces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales.

Liberalisierungsversprechen und Regulierungsversagen - Das kalifornische Strommarktdebakel

2002 ◽  
Vol 51 (2) ◽  
Author(s):  
Lars Kumkar
Keyword(s):  
Electricity Market ◽  
Regulatory Policy ◽  
Present Situation ◽  
The Political ◽  
Regulation Policy ◽  
Essential Questions ◽  
Regulatory Failure ◽  
Incentive Constraints

AbstractThis paper discusses the California electricity market debacle and asks which lessons could be drawn from the Californian experience. It analyzes the market developments and depicts the reasons for the market meltdown. It is shown that the present situation in California may be only the calm before the next storm. Essential questions concerning regulatory policy are unsettled, and the Californian policymakers at present do not seem to be able to resolve the problems largely stemming from their own past decisions. The revealed regulatory failure demonstrates that design and analysis of adequate competition and regulation policy must explicitly consider incentive constraints in the political-regulatory area.

Global Incentive Constraints in Auction Design

Econometrica ◽  
1984 ◽  
Vol 52 (6) ◽  
pp. 1523 ◽  
Author(s):  
John Moore
Keyword(s):  
Auction Design ◽  
Incentive Constraints

scholarly journals Lotteries, Sunspots, and Incentive Constraints

2002 ◽  
Vol 107 (1) ◽  
pp. 39-69 ◽  
Author(s):  
Timothy J. Kehoe ◽  
David K. Levine ◽  
Edward C. Prescott
Keyword(s):  
Incentive Constraints

scholarly journals Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach

2012 ◽  
Vol 4 (1) ◽  
pp. 32-69 ◽  
Author(s):  
Itay P Fainmesser
Keyword(s):  
Community Structure ◽  
Asymmetric Information ◽  
Repeated Games ◽  
Discount Factor ◽  
Market Outcomes ◽  
Incomplete Knowledge ◽  
Large Market ◽  
Trade Relationships ◽  
Incentive Constraints ◽  
Rule Out

Consider a large market with asymmetric information, in which sellers have the option to “cheat” their buyers, and buyers decide whether to repurchase from different sellers. We model active trade relationships as links in a buyer-seller network and study repeated games in such networks. Endowing sellers with incomplete knowledge of the network, we derive conditions that determine whether a network is consistent with cooperation between every buyer and seller that are connected. Three network features reduce the minimal discount factor sufficient for cooperation: moderate and balanced competition, sparseness, and segregation. Incentive constraints are binding and rule out efficient networks. (JEL C73, D82, D85, Z13)

Exchange Agreements Facilitate Collusion

2001 ◽  
Vol 2 (2) ◽  
pp. 113-125 ◽  
Author(s):  
Hans-Theo Normann
Keyword(s):  
The Other ◽  
Quantity Competition ◽  
Duopoly Model ◽  
Incentive Constraints

Abstract A duopoly model with quantity competition is analyzed in which firms collude in two markets. There is specialization in production in order to promote efficiency. Firms may then either exclusively market one good each, or they may agree to exchange goods and cross-supply a part of the production to the other firm. It is shown that, compared to specialization in marketing, positive exchanges of goods relax the incentive constraints that limit the extent of collusion.

scholarly journals Algorithms for Stochastic Games With Perfect Monitoring

Econometrica ◽  
2020 ◽  
Vol 88 (4) ◽  
pp. 1661-1695 ◽  
Author(s):  
Dilip Abreu ◽  
Benjamin Brooks ◽  
Yuliy Sannikov
Keyword(s):  
Nash Equilibria ◽  
Stochastic Games ◽  
Pure Strategy ◽  
Value Iteration ◽  
Software Implementations ◽  
Novel Algorithms ◽  
Countably Infinite ◽  
Perfect Monitoring ◽  
Incentive Constraints ◽  
Theoretical Results

We study the pure‐strategy subgame‐perfect Nash equilibria of stochastic games with perfect monitoring, geometric discounting, and public randomization. We develop novel algorithms for computing equilibrium payoffs, in which we combine policy iteration when incentive constraints are slack with value iteration when incentive constraints bind. We also provide software implementations of our algorithms. Preliminary simulations indicate that they are significantly more efficient than existing methods. The theoretical results that underlie the algorithms also imply bounds on the computational complexity of equilibrium payoffs when there are two players. When there are more than two players, we show by example that the number of extreme equilibrium payoffs may be countably infinite.

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