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Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem

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  • Holden, Richard T.
  • Fudenberg, Drew
  • Aghion, Philippe

Abstract

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore-Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3708929/Aghion_SubgamePerfect.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3708929.

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Date of creation: 2009
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Publication status: Published in NBER Working Paper Series
Handle: RePEc:hrv:faseco:3708929

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  1. Kim-Sau Chung & Jeffrey C. Ely, 2003. "Implementation with Near-Complete Information," Econometrica, Econometric Society, Econometric Society, vol. 71(3), pages 857-871, 05.
  2. Jonathan Weinstein & Muhamet Yildiz, 2007. "A Structure Theorem for Rationalizability with Application to Robust Predictions of Refinements," Econometrica, Econometric Society, Econometric Society, vol. 75(2), pages 365-400, 03.
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Cited by:
  1. Andres Almazan & Javier Suarez & Sheridan Titman, 2009. "Firms' Stakeholders and the Costs of Transparency," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 18(3), pages 871-900, 09.
  2. Philippe Aghion & Drew Fudenberg & Richard Holden & Takashi Kunimoto & Olivier Tercieux, 2012. "Subgame-Perfect Implementation Under Information Perturbations," The Quarterly Journal of Economics, Oxford University Press, Oxford University Press, vol. 127(4), pages 1843-1881.

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