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On the Optimality of Privacy in Sequential Contracting

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Author Info
Giacomo Calzolari
Alessandro Pavan

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Abstract

This paper studies the exchange of information between two principals who contract sequentially with the same agent, as in the case of a buyer who purchases from multiple sellers. We show that when (a) the upstream principal is not personally interested in the downstream level of trade, (b) the agent’s valuations are positively correlated, and (c) preferences in the downstream relationship are separable, then it is optimal for the upstream principal to offer the agent full privacy. On the contrary, when any of these conditions is violated, there exist preferences for which disclosure is strictly optimal, even if the downstream principal does not pay for the information. We also examine the effects of disclosure on welfare and show that it does not necessarily reduce the agent’s surplus in the two relationships and in some cases may even yield a Pareto improvement. The paper describes this condition and its implications.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1404.

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Date of creation: Mar 2005
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Handle: RePEc:nwu:cmsems:1404

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Related research
Keywords: contractual and informational externalities mechanism design optimal disclosure policies sequential common agency games exogenous and endogenous private information.

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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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.:
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    Other versions:
  3. Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
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  8. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May. [Downloadable!] (restricted)
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    Other versions:
  10. Martimort, David, 1999. "Renegotiation Design with Multiple Regulators," Journal of Economic Theory, Elsevier, vol. 88(2), pages 261-293, October. [Downloadable!] (restricted)
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  16. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March. [Downloadable!] (restricted)
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    Other versions:
  19. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-72, September.
    Other versions:
  20. Helmut Bester & Roland Strausz, . "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers. [Downloadable!]
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  23. 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)
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Full references

Cited by:
(explanations, 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. Diaw, K.M. & Pouyet J.,, 2004. "Competition, incomplete discrimination and versioning," Discussion Paper 69, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Alexander K. Koch & Eloïc Peyrache, 2005. "Tournaments, Individualized Contracts and Career Concerns," IZA Discussion Papers 1841, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Privacy, Publicity, and Choice," Working Papers 0809, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
    • Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Settlement," Working Papers 0808, Department of Economics, Vanderbilt University. [Downloadable!]
  4. Jan Bouckaert & Hans Degryse, 2006. "Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  5. Heski Bar-Isaac & Ian Jewitt & Clare Leaver, 2007. "Information and Human Capital Management," Economics Series Working Papers 367, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  6. Clare Leaver & Gian Luigi Albano, 2004. "Transparency, Recruitment and Retention in the Public Sector," Economics Series Working Papers 219, University of Oxford, Department of Economics. [Downloadable!]
  7. Calzolari, Giacomo & Scarpa, Carlo, 2007. "Footloose Monopolies: Regulating a "National Champion"," CEPR Discussion Papers 6413, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Kai-Lung Hui & I.P.L. Png, 2005. "The Economics of Privacy," Industrial Organization 0505007, EconWPA, revised 29 Aug 2005. [Downloadable!]
  9. Gian Luigi Albano & Clare Leaver, 2005. "Transparency, Recuitment and Retention in the Public Sector," The Centre for Market and Public Organisation 05/132, Department of Economics, University of Bristol, UK. [Downloadable!]
  10. Calzolari, Giacomo & Scarpa, Carlo, 2007. "Regulating a Multi-Utility Firm," CEPR Discussion Papers 6238, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Mark Armstrong, 2005. "Recent Developments in the Economics of Price Discrimination," Industrial Organization 0511004, EconWPA. [Downloadable!]
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