Verifiability And Group Formation In Markets
The authors consider group formation with asymmetric information. Agents have unverifiable characteristics as well as the verifiable qualifications required for memberships in groups. The characteristics can be chosen, such as strategies in games, or can be learned, such as skills required for jobs. They can also be innate, such as intelligence. They assume that the unverifiable characteristics are observable ex post (after groups have formed) in the sense that they may affect the output and utility of other agents in the group. They are not verifiable ex ante, which means that prices for memberships cannot depend on them, and they cannot be used for screening members.