Universität Bonn

Department of Economics

Bruno Biais - HEC Paris

"Money implements optimal dynamic mechanisms"


We analyze capital allocation and risk sharing between a principal and many agents. Under symmetric information, agents are perfectly insured against the idiosyncratic risk of their projects. But when agents privately observe their output and can divert it, incentive compatibility requires that they bear part of their idiosyncratic risk. The Pareto frontier is parametrized by the agent’s risk exposure: the larger this exposure, the more the principal can extract rents from the agents. The optimal dynamic mechanism can be implemented with money. Inflation affects agents’ portfolio choice between risky capital and safe money. The principal sets inflation so that agents’ risk exposure is the same as in the optimal contract. When agents can design and use cryptocurrencies, this limits the ability of the principal to extract rents via seigneuriage.

Additional information:

  • Speaker: Bruno Biais
  • Time: Wednesday, 10.05.2023, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036 / Online via Zoom
  • Further links:
  • Organizer: Finance Group
  • Contact:

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