A 'Coalition Proof' Equilibrium for a Private Information Credit Economy

40 Pages Posted: 3 Nov 2012

See all articles by Jeffrey M. Lacker

Jeffrey M. Lacker

Federal Reserve Bank of Richmond

John A. Weinberg

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: November 5, 1990

Abstract

This paper examines an economy in which agents with private information about their own productive capabilities seek to raise capital to fund their investment projects. We employ an equilibrium concept which is closely related to Coalition Proof Nash Equilibrium. In equilibrium, all agents who succeed in raising capital (entrepreneurs) are pooled; they all receive the same contract or consumption schedule. Entrepreneurs, however, are separated from those who fail to raise capital. This separation results in productive efficiency for the economy. If the economy has no viable alternative investment opportunity (other than agents' projects) then equilibrium allocations can be supported by a (non-intermediated) securities market. If there is a viable alternative, the equilibrium allocations can only be supported through the formation of a form of financial intermediary coalition.

Suggested Citation

Lacker, Jeffrey M. and Weinberg, John A., A 'Coalition Proof' Equilibrium for a Private Information Credit Economy (November 5, 1990). Federal Reserve Bank of Richmond Working Paper No. 90-8, Available at SSRN: https://ssrn.com/abstract=2123588 or http://dx.doi.org/10.2139/ssrn.2123588

Jeffrey M. Lacker

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
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HOME PAGE: http://www.richmondfed.org

John A. Weinberg (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8205 (Phone)
804-697-8255 (Fax)

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