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Imperfect Commitment and the Revelation Principle

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Author Info
Helmut Bester ()
Roland Strausz ()

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Abstract

This paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism. We show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent. In contrast with the conventional revelation principle, however, the agent may not use this strategy with probability one. Our results provide a basic tool for studying dynamic contracting problems between a principal and a single agent. Also, we indicate that the revelation principle cannot be extended to a framework with multiple agents and limited commitment.

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Paper provided by Departmental Working Papers in its series Papers with number 004.

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Handle: RePEc:bef:lsbest:004

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Related research
Keywords: revelation principle; mechanism design; limited commitment; asymmetric information;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January. [Downloadable!] (restricted)
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  2. Dewatripont, Mathias, 1989. "Renegotiation and Information Revelation over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 589-619, August. [Downloadable!] (restricted)
  3. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 509-40, October. [Downloadable!] (restricted)
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  4. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 173-91, April. [Downloadable!] (restricted)
  5. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Blackwell Publishing, vol. 57(4), pages 597-625, October. [Downloadable!] (restricted)
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  6. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November. [Downloadable!] (restricted)
  7. Green, Jerry R & Laffont, Jean-Jacques, 1987. "Posterior Implementability in a Two-Person Decision Problem," Econometrica, Econometric Society, vol. 55(1), pages 69-94, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hannu Vartiainen, 2003. "Auction Design without Commitment," Working Papers 2003.24, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  2. Kay Mitusch & Roland Strausz, 2000. "Mediation in Situations of Conflict," Econometric Society World Congress 2000 Contributed Papers 0361, Econometric Society. [Downloadable!]
  3. Asher Wolinsky, 1999. "Eliciting Information From Multiple Experts," Discussion Papers 1277, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Giacomo Calzolari & Alessandro Pavan, 2004. "On the Optimality of Privacy in Sequential Contracting," Discussion Papers 1394, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  5. Tymofiy Mylovanov, 2004. "Veto-Based Delegation," Discussion Papers 129, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Jan 2005. [Downloadable!]
  6. Vasiliki Skreta, 2005. "Optimal Auction Design under Non-Commitment," UCLA Economics Online Papers 346, UCLA Department of Economics. [Downloadable!]
  7. Patrick Leoni, . "Banking Regulation without Commitment to Audit," IEW - Working Papers iewwp251, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  8. Kohei Kawamura, 2007. "Constrained Communication with Multiple Agents: Anonymity, Equal Treatment, and Public Good Provision," ESE Discussion Papers 166, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  9. Laffont, Jean-Jacques, 2001. "Enforcement, Regulation and Development," IDEI Working Papers 129, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  10. Vasiliki Skreta, 2003. "Optimal Auction Design under Non-Commitment," Levine's Bibliography 506439000000000176, UCLA Department of Economics. [Downloadable!]
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