- Implementation Of Optimal Contracts Under Adverse Selection
AbstractThis paper studies the principal-multiagent model of a firm subject to adverse selection. We focus on agents who have complete information. We propose some desirable properties to be satisfied by mechanisms implementing the first-best in Nash equilibrium: (i) enforceability (a property related with the individual rationality of the mechanism), (ii) renegotiation-proofness, (iii) small strategy spaces, (iv) unique implementation, (v) unique best-reply and (vi) no mixed strategies. We prove that enforceability is not compatible with renegotiation-proofness or the unique best-reply property. Then we propose two mechanisms. The first one satisfies properties (i), (ii) and (iv). The second mechanism verifies all properties but enforceability.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1998-25.
Length: 44 pages
Date of creation: Dec 1998
Date of revision:
Publication status: Published by Ivie
adverse selection; contract theory; implementation theory;
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