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Active Courts and Menu Contracts

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Author Info
Luca Anderlini
Leonardo Felli
Andrew Postlewaite

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Abstract

We describe and analyze a contractual environment that allows a role for an active court.The model we analyze is the same as in Anderlini, Felli, and Postlewaite (2006). Anactive court can improve on the outcome that the parties would achieve without it. Theinstitutional role of the court is to maximize the parties' welfare under a veil ofignorance.In Anderlini, Felli, and Postlewaite (2006) the possibility of "menu contracts" betweenthe informed buyer and the uninformed seller is described but not analyzed. Here, wefully analyze this case.We find that if we maintain the assumption that one of the potential objects of trade is notcontractible ex-ante, the results of Anderlini, Felli, and Postlewaite (2006) survive intact.If however we let all "widgets" be contractible ex-ante, then multiple equilibria obtain. Inthis case the role for an active court is to ensure the inefficient pooling equilibria do notexist alongside the superior ones in which separation occurs.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number /2006/511.

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Date of creation: Oct 2006
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Handle: RePEc:cep:stitep:/2006/511

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Related research
Keywords: Optimal Courts; Informational Externalities; Ex-ante Welfare; Informed Principal; Menu Contracts.;

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Find related papers by JEL classification:
C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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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. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April. [Downloadable!] (restricted)
  2. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September. [Downloadable!] (restricted)
  3. Baliga, Sandeep & Corchon, Luis C. & Sjostrom, Tomas, 1997. "The Theory of Implementation When the Planner Is a Player," Journal of Economic Theory, Elsevier, vol. 77(1), pages 15-33, November. [Downloadable!] (restricted)
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  4. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
  5. Luca Anderlini, Leonardo Felli, & Andrew Postlewaite, . "Should Courts Always Enforce What Contracting Parties Write?," Working Papers gueconwpa~03-03-29, Georgetown University, Department of Economics. [Downloadable!]
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  6. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January. [Downloadable!] (restricted)
  7. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July. [Downloadable!] (restricted)
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  1. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2003. "Should Courts Always Enforce What Contracting Parties Write?," PIER Working Paper Archive 06-024, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Oct 2006. [Downloadable!]
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