Cooperation under Incomplete Contracting
Maastricht University Working Paper No. RM/09/026
37 Pages Posted: 28 Jul 2009
Date Written: July 28, 2009
Abstract
We examine the notion of the core when cooperation takes place in a setting with time and uncertainty. We do so in a two-period general equilibrium setting with incomplete markets. Market incompleteness implies that players cannot make all possible binding commitments regarding their actions at different date-events. We unify various treatments of dynamic core concepts existing in the literature. This results in definitions of the Classical Core, the Segregated Core, the Two-stage Core, the Strong Sequential Core, and the Weak Sequential Core. Except for the Classical Core, all these concepts can be defined by requiring absence of blocking in period 0 and at any date-event in period 1. The concepts only differ with respect to the notion of blocking in period 0. To evaluate these concepts, we study three market structures in detail: strongly complete markets, incomplete markets in finance economies, and incomplete markets in settings with multiple commodities.
Keywords: Cooperation, Incomplete contracting, Core, Time and uncertainty
JEL Classification: C71, C73, D52
Suggested Citation: Suggested Citation