18. Final Activity Report Summary - ACMI (Aggregate implications of asymmetric information in credit markets)

Abstract: The project developed the theoretical analysis of financial markets where intermediaries strategically compete over the contract offers they make to consumers/entrepreneneurs. Our research has mainly been focused on markets where financial contracts are non-exclusive: every single agent is allowed to trade with several intermediaries at a time, and her decisions cannot be contracted upon.

Overall, we have provided new results for the analysis of these markets, both on the positive and on the normative side. Indeed, competition in non-exclusive financial markets typically delivers non-competitive results, in the form of positive extra-profits for the active intermediaries and of a distorted distribution of surplus. Our research has made several advances in the characterisation of the corresponding equilibrium allocations as well as in the Welfare analysis. In particular, we have concentrated our attention on those situations where the social planner cannot directly enforce exclusivity clauses. That is, the strategic behaviour of intermediaries becomes a constraint for the planner.

The analysis of competition over contracts under asymmetric information is typically studied as a mechanism design game between several principals. Joining this perspective, our research also provided new results on the theoretical properties of these games. In particular, we contributed to clarify under which conditions it is possible to restrict the number of instruments available to competitors without any loss of generality.

Our investigation constitutes the first step of a broader research agenda, where we plan to properly investigate the macroeconomic implications of competition in non-exclusive markets. We believe that there is room for a theoretical representation of the relationship between the real and the financial sector which is based on the structure of financial contracts.

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