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Related Experiment Video

Updated: May 31, 2026

The Joint Effect of Social Comparison and Social Distance on Evaluation of Intertemporal Choice Outcomes in Event-related Potential Studies

The Joint Effect of Social Comparison and Social Distance on Evaluation of Intertemporal Choice Outcomes in Event-related Potential Studies

Published on: August 25, 2023

Information-Constrained Optima with Retrading: An Externality and Its Market-Based Solution.

Weerachart T Kilenthong¹, Robert M Townsend

¹Research Institute for Policy Evaluation and Design (RIPED) University of the Thai Chamber of Commerce, Thailand.

Journal of Economic Theory

|July 19, 2011

Summary

This summary is machine-generated.

This study explores how moral hazard and private information affect market efficiency. By allowing ex ante contracts on market fundamentals, competitive equilibria can achieve constrained Pareto optimality, resolving externalities from retrading.

Related Experiment Videos

Last Updated: May 31, 2026

The Joint Effect of Social Comparison and Social Distance on Evaluation of Intertemporal Choice Outcomes in Event-related Potential Studies

The Joint Effect of Social Comparison and Social Distance on Evaluation of Intertemporal Choice Outcomes in Event-related Potential Studies

Published on: August 25, 2023

Area of Science:

Economics
Game Theory
Market Design

Background:

Moral hazard and unobserved states create inefficiencies in competitive equilibria.
Retrading in ex post spot markets exacerbates externalities due to private information.

Purpose of the Study:

To analyze the efficiency of competitive equilibria with moral hazard and retrading.
To investigate mechanisms for internalizing externalities arising from private information and retrading.
To establish conditions for equivalence between competitive equilibria and constrained Pareto optimality.

Main Methods:

Theoretical modeling of agent interactions in environments with moral hazard and unobserved states.
Analysis of ex ante contracting on market fundamentals (spot prices, interest rates).
Examination of the role of preferences and their impact on externality internalization.

Main Results:

The interaction of private information and retrading creates externalities unless preferences are highly restrictive.
Allowing ex ante contracts on market fundamentals internalizes these externalities.
Competitive equilibria become equivalent to constrained Pareto optimality under these contracting conditions.
Examples demonstrate the potential for multiple endogenous market fundamentals or 'price-islands' in equilibrium.

Conclusions:

Efficient competitive equilibria can be achieved by enabling ex ante contracts on market fundamentals.
This approach resolves externalities stemming from moral hazard and retrading in spot markets.
The model highlights the endogenous emergence of multiple equilibria structures, termed 'price-islands'.