On manipulability in financial systems

Abstract

We investigate manipulability in the setting of financial systems by considering two weak forms of immunity: non-manipulability via merging and non- manipulability via splitting. Not surprinsingly, non-manipulability via splitting is incompatible with some basic axioms: claim boundedness, limited liability, and absolute priority. Outstandingly, we introduce a large class of financial rules that are immune to manipulations via merging. This class includes the proportional financial rule but also financial rules in accordance with parametric bankruptcy rules fulfilling non-manipulability via merging. Keywords: financial systems, manipulability via merging, manipulability via splitting, parametric bankruptcy rules JEL: C71