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Contracting Environments and Efficiency in Markets with Hidden Information: An Experiment

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  • Wanda Mimra
  • Christian Waibel

Abstract

This paper provides the first systematic analysis of the role of contracting environments on market outcomes and efficiency in markets with hidden information using experimental methods. When markets are plagued by hidden information, competition does not necessarily ensure efficient market outcomes. This crucially depends on the nature of the hidden information. We present a parsimonious experimental design that serves to compare the different contracting environments for both types of hidden information markets, private and common values. The degree of equilibrium play that we find is strikingly high, particularly in the complex cases of competitive common values markets.

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  • Wanda Mimra & Christian Waibel, 2025. "Contracting Environments and Efficiency in Markets with Hidden Information: An Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 17(3), pages 35-74, August.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:3:p:35-74
    DOI: 10.1257/mic.20170293
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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