Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

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 surprisingly, 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 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 surprisingly, 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-codes: C71

Language: English

39 pages, December 22, 2021

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