CONSTRAINED EFFICIENT MARKETS FOR MANIPULATION ECONOMIES

We design a competitive market for exclusive contracts in large economies with observable types where trades are subject to postcontractual manipulations. We do not impose quantity restrictions at the trading stage—for example, incentive constraints on the consumption or production sets. We establis...

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Bibliographic Details
Published inInternational economic review (Philadelphia) Vol. 61; no. 4; pp. 1531 - 1567
Main Authors Citanna, Alex, Siconolfi, Paolo
Format Journal Article
LanguageEnglish
Published Philadelphia Wiley 01.11.2020
Wiley Subscription Services, Inc
Blackwell Publishing Ltd
Subjects
Bias
Economic theory
Efficient markets
False belief
Inconsistency
Loyalty contracts
Manipulation
Markets
Trading
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ISSN0020-6598
1468-2354
DOI10.1111/iere.12465

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Summary:We design a competitive market for exclusive contracts in large economies with observable types where trades are subject to postcontractual manipulations. We do not impose quantity restrictions at the trading stage—for example, incentive constraints on the consumption or production sets. We establish existence and constrained optimality of equilibrium. Our design can accommodate manipulations stemming from private information as well as from behavioral biases—for example, time inconsistency and false beliefs. We discuss the needed size and complexity of the commodity set.
Bibliography:We thank the referees, the editor, seminar participants at Columbia Business School, Kansas University, NYU‐Abu Dhabi, Paris SWET 2016, and particularly Prajit Dutta, for their comments.
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ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12465