Working Paper

Inducing agents to report hidden trades: a theory of an intermediary

Abstract: When contracts are unobserved, agents may have the incentive to promise the same asset to multiple counterparties and subsequently default. The author constructs an optimal mechanism that induces agents to reveal all their trades voluntarily. The mechanism allows agents to report every contract they enter, and it makes public the names of agents who have reached some prespecified position limit. In some cases, an agent's position limit must be higher than the number of contracts he enters in equilibrium. The mechanism has some features of a clearinghouse. ; Supersedes Working Paper 09-10

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2010

Number: 10-28