General Competitive Analysis in an Economy with Private Information

Enduring Relationships in an Economy with Capital and Private Information

We introduce capital accumulation into an economy where individuals have private information with respect to productivity shocks. Efficient, incentive-compatible risk-sharing is achieved by conditioning current and future payoffs on the history of productivity reports. We develop a notion of efficiency, similar to that of Atkeson and Lucas (1992). The capital stock in the economy is endogenous ...

Competitive Experimentation and Private Information

Existence of an Equilibrium in a General Competitive Exchange Economy with Indivisible Goods and Money

We introduce a general competitive exchange economy with indivisible goods and money. There are finitely many agents and finitely many indivisible goods. Each agent is initially endowed with several units of each indivisible good and certain amount of money. Money is treated as a perfectly divisible good. The agents’ preferences depend on the bundle of indivisible goods and the quantity of mone...

Competitive experimentation with private information: The survivor's curse

We study a winner-take-all R&D race between two firms that are privately informed about the arrival rate of an invention. Over time, each firm only observes whether the opponent left the race or not. The equilibrium displays a strong herding effect, that we call a ‘survivor’s curse.’ Unlike in the case of symmetric information, the two firms may quit the race (nearly) simultaneously even when t...

Technical Appendix to Enduring Relationships in an Economy with Capital and Private Information

In this appendix, we introduce a more general allocation and demonstrate the equal treatment property. All the proofs are in section 2. Let C ⊆ R be the domain of the utility function, so C = (0,∞) for log utility and γ < 0 and [0,∞) for γ > 0. By C − x we will mean the algebraic sum of the sets C and {−x}. Similarly, define V = u(C). At any given time t , the principal knows an agent’s initial...