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MULTI-LATERAL CONTRACTING WITH MANIPULATION
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AI
DOI：10.1093/ej/ueab013.png)
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Abstract
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We study multi-lateral risk sharing when the state of nature is unverifiable, so that contracts are conditioned on a state-dependent signal (e.g., net earnings in a financial report). A subset of the agents can manipulate the signal's realisation at some cost and, as a result, Pareto-optimal reallocation of risk is precluded. The agents can write additional side contracts that can be used to incentivise one of the parties to manipulate the signal. Using a novel stability notion that takes into account agents' beliefs about contemporaneous deviations initiated by their counter-parties, we explore the limits of risk sharing and risk bearing.
Keywords:
MECHANISM-DESIGN
COLLUSION
NETWORKS
AUCTIONS
GAMES