Leonidas C. Koutsougeras

Incentive compatibility and information superiority of the core of an economy with differential information

We analyze the coarse, the fine, and the private core allocation of an exchange economy with differential information. The basic questions that we address are whether the above concepts are: (i) coalitionally incentive compatible, i.e., does truthful revelation of information in each coalition occur; and (ii) taking into account the information superiority or information advantage of an agent. Moreover, the above three concepts are examined in the presence of externalities and a comparison and interpretation of all of three core notions is provided.

Non-Walrasian equilibria and the law of one price

Abstract We present a market game which features multiple posts for each commodity. We use this framework to illustrate the idea that in non-Walrasian markets, where individual activities influence market clearing prices, there are equilibria where commodities are exchanged simultaneously in two posts at different prices, thus defying the ‘law of one price’. Such equilibria are compatible with an apparent arbitrage possibility, which dissipates whenever individuals try to take advantage of it.

A two-stage core with applications to asset market and differential information economies

We introduce a new core concept, called the two-stage core, which is appropriate for economies with sequential trade. We prove a general existence theorem and present two applications of the two-stage core: (i) In asset markets economies where we extend our existence proof to the case of consumption sets with no lower bound, in order to capture the case of arbitrary short sales of assets. Further, we show that the two-stage core is non empty in the Hart (1975) example where a rational expectations equilibrium fails to exist. (ii) In differential information economies where we provide sufficient conditions for the incentive compatibility of trades. Namely, that no coalition of agents can misreport the true state and provide improvements to all its members, even by redistributing the benefits from misreporting.

Convergence and Approximation Results for Non-cooperative Bayesian Games: Learning Theorems

SummaryLetT denote a continuous time horizon and {Gt:t∈T} be a net (generalized sequence) of Bayesian games. We show that: (i) if {xt: t∈T} is a net of Bayesian Nash Equilibrium (BNE) strategies for Gt we can extract a subsequence which converges to a limit full information BNE strategy for a one shot limit full information Bayesian game, (ii) If {xt: t∈T} is a net of approximate or εt-BNE strategies for the game Gt we can still extract a subsequence which converges to the one shot limit full information equilibrium BNE strategy, (iii) Given a limit full information BNE strategy of a one shot limit full information Bayesian game, we can find a net of εt-BNE strategies {xt: t∈T} in {Gt:t∈T} which converges to the limit full information BNE strategy of the one shot game.

Free entry versus socially optimal entry

This paper reconsiders the well-known comparison of equilibrium entry levels into a Cournot industry under free entry, second best (control of entry but not production) and first best (control of entry and production). Allowing for the possibility of limited increasing returns to scale in production, this paper generalizes the conclusion of Mankiw and Whinston (1986) [10], that under business-stealing competition, free entry yields more firms than the second-best solution. We also show that under-entry always holds under business-enhancing competition. This confirms the general intuition given by Mankiw and Whinston, which does not rely on the convexity of the cost function. The same result is shown to extend (at a similar level of generality) to the comparison between free entry and the first best socially optimal solution, irrespective of business-stealing. Three illustrative examples are provided, one showing that the second-best and free entry solutions may actually coincide.

Convergence of strategic behavior to price taking

We address the following issue: what can be said about the degree of competition, in a set of markets with a large number of participants, when no information on the distribution of individual characteristics is available? Our main result is that the proportion of individuals whose strategic behavior differs substantially from price taking, converges to zero as the number of market participants becomes large, regardless of the distribution of characteristics.

A three way equivalence

In view of the well known core equivalence results in atomless economies, coincidence of market game equilibrium allocations with competitive allocations is tantamount to a three way equivalence between market game mechanisms, competitive equilibria and the core. Based on this idea I propose an equilibrium refinement of market games which allows me to use the core equivalence machinery to provide an exact market game characterization of competitive equilibria.

Market Games with Multiple Trading Posts

We study market games with multiple posts per commodity. We provide some facts that characterize prices of commodities across posts and show the following results: (i) As the number of agents increases, the price variability across posts for a commodity becomes smaller and it becomes zero when the number of agents becomes inffinite, irrespectively of the distribution of characteristics in the economy. (ii) The set of equilibrium prices and allocations of a market game is a subset of the set of equilibria of another game with more trading posts per commodity. (iii) We demonstrate via an example that the inclusion can be strict, as there are equilibria with price disparities across posts for a commodity which cannot be captured with less trading posts. (iv) One can pass from an equilibrium of a market game into an equilibrium of a game with less trading posts per commodity, by consolidating posts where the price of a commodity is uniform.

A Strategic Market Game of Carry Trades and Equilibrium Profits

We formalize carry trade in a two-country, two-period general equilibrium strategic market game model of an economy with no uncertainty where agents are not price takers. We show that when carry trade occurs at a Nash equilibrium it is profitable and is identified with the failure of the uncovered interest rate parity condition. Carry trade profits are attributed to asymmetric elasticities in currency or credit markets across time. Furthermore, at equilibrium, real national interest rates may not equalize across countries thus violating the standard international Fisher effect.

A Note on Information, Trade and Common Knowledge

We recast the well known no trade result in Milgrom and Stokey (1982) using the appropriate definition of efficiency among several available in the asymmetric information framework.