This paper builds a theory of informal contract enforcement in social networks. In our model, relationships between individuals generate social collateral that can be used to control moral hazard when agents interact in a borrowing relationship. We define trust between two agents as the maximum...

This book shows how to combine game theory and option pricing in order to analyze dynamic multiperson decision problems in continuous time and under uncertainty. The basic intuition of the method is to separate the problem of the valuation of payoffs from the analysis of strategic interactions....

We study a strategic market game with finitely many traders, infinite horizon and real assets. To this standard framework (see, e.g. Giraud and Weyers, 2004) we add two key ingredients: First, default is allowed at equilibrium by means of some collateral requirement for financial assets; second,...

Existence of asymmetric information and lack of collateral in informal financial markets creates a suboptimal allocation of financial resources to those in most need. When borrowers (safe and risky), approach financial institutions, the presence of moral hazard and adverse selection results in...