General equilibrium with asymmetric information: a dual approach

We study markets where the characteristics or decisions of certain agents are relevant but not known to their trading partners. Assuming exclusive transactions, the environment is described as a continuum economy with indivisible commodities. We characterize incentive efficient allocations as solutions to linear programming problems and appeal to duality theory to demonstrate the generic existence of external effects in these markets. Because under certain conditions such effects may generate non-convexities, randomization emerges as a theoretic possibility. In characterizing market equilibria we show that, consistently with the personalized nature of transactions, prices are generally non-linear in the underlying consumption. On the other hand, external effects may have critical implications for market efficiency. With adverse selection, in fact, cross-subsidization across agents with different private information may be necessary for optimality, and so, the market need not even achieve an incentive efficient allocation. In contrast, for the case of a single commodity, we find that when informational asymmetries arise after the trading period (e.g. moral hazard; ex post hidden types) external effects are fully internalized at a market equilibrium.

The Effect of relationship lending on firm performance

We examine how relationship lending affects firm performance using a panel dataset of about 70,000 small and medium Spanish firms in the period 1993-2004. We model firm performance jointly with the firm's choice of the number of bank relationships. Controlling for firm fixed effects and using instrumental variables for the decision on the number of bank relationships, we find that firms maintaining exclusive bank relationships have lower profitability. The result is consistent with the view that banks appropriate most of the value generated through close relationships with its borrowers as long as they do not face competition from other lenders.

Caldron

Combined media on paper. 96" x 40", Fire River Series. Private Collection

Clinging, Fire

Combined media on paper. 96" x 40", Fire River Series. Private Collection

Darkening of Light

Combined media on paper. 90" x 40", Fire River Series

Gold, Water

Combined media on paper. 82" x 40", Fire River Series. Hammer Museum, UCLA

Keeping Still, Mountain

Combined media on paper. 90" x 40", Fire River Series

Lake

Combined media on paper. 84" x 40"

Penetrating Wind

Combined media on paper. 96" x 40"

Pushing Upward

Combined media on paper. 90" x 40", Fire River Series

The Well

Combined media on paper. 110" x 40", Private Collection

Wander

Combined media on paper. 90" x 40", Fire River Series

Black Yield

Combined media on paper. 40" x 90"

Dragon

Combined media on paper. 85" x 42"

Desert Grace

Combined media on paper. 91" x 42", Private Collection