Inducing Agents to Report Hidden Trades: A Theory of an Intermediary* | Zendy

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Inducing Agents to Report Hidden Trades: A Theory of an Intermediary*

Author(s) -

Yaron Leitner

Publication year - 2011

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfr017

Subject(s) - mechanism (biology) , position (finance) , asset (computer security) , business , limit (mathematics) , microeconomics , computer science , economics , computer security , finance , mathematics , epistemology , mathematical analysis , philosophy

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. ; Superseded by Working Paper 10/28R ; Supersedes Working Paper 05-12/R

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