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Imperfect Commitment and the Revelation Principle

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  • Helmut Bester

    ()

  • Roland Strausz

    ()

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

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  1. 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.
  2. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  3. 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.
  4. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 509-40, October.
  5. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
  6. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 597-625, October.
  7. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
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