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Neutral Optima in Informed Principal Problems with Common Values

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  • Dieter Balkenborg

    (Department of Economics, University of Exeter)

  • Miltiadis Makris

    (Department of Economics, University of Leicester)

Abstract

In a class of informed principal problems with common values often used in applications we de…fine a particular mechanism which we call the assured allocation. It is always undominated, i.e. efficient among the different types of the principal. We show it is a perfect Bayesian equilibrium allocation of the three-stage game studied in Maskin and Tirole (1992) that coincides with the Rothschild-Stiglitz- Wilson allocation when the latter is undominated. Under familiar conditions on hazard rates we show that the assured allocation is a neutral optimum in the sense of Myerson (1983).

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0902.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0902.

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Date of creation: 2009
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Handle: RePEc:exe:wpaper:0902

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Keywords: Neutral optimum; mechanism design; informed principal;

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