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Definable and Contractible Contracts

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  • Michael Peters
  • Balázs Szentes

Abstract

This paper analyzes Bayesian normal form games in which players write contracts that condition their actions on the contracts of the other players. These contracts are required to be representable in a formal language. This is accomplished by constructing contracts which are definable functions of the Godel code of every other player's contract. We provide a complete characterization of the set of allocations supportable as pure strategy Bayesian equilibrium of this contracting game. When information is complete, this characterization provides a folk theorem. In general, the set of supportable allocations is smaller than the set supportable by a centralized mechanism designer.
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Suggested Citation

  • Michael Peters & Balázs Szentes, 2012. "Definable and Contractible Contracts," Econometrica, Econometric Society, vol. 80(1), pages 363-411, January.
  • Handle: RePEc:ecm:emetrp:v:80:y:2012:i:1:p:363-411 DOI: ECTA8375
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    File URL: http://hdl.handle.net/10.3982/ECTA8375
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    References listed on IDEAS

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    1. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-1797, November.
    2. Martimort, David & Moreira, Humberto, 2010. "Common agency and public good provision under asymmetric information," Theoretical Economics, Econometric Society, vol. 5(2), May.
    3. Michael L. Katz, 2006. "Observable Contracts as Commitments: Interdependent Contracts and Moral Hazard," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 685-706, September.
    4. Takuro Yamashita, 2010. "Mechanism Games With Multiple Principals and Three or More Agents," Econometrica, Econometric Society, vol. 78(2), pages 791-801, March.
    5. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    6. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    7. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
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    Cited by:

    1. Han, Seungjin, 2015. "Robust competitive auctions," Economics Letters, Elsevier, vol. 136(C), pages 207-210.
    2. Juan I. Block & David K. Levine, 2016. "Codes of conduct, private information and repeated games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 971-984, November.
    3. repec:eee:gamebe:v:105:y:2017:i:c:p:297-315 is not listed on IDEAS
    4. Françoise Forges & Ulrich Horst & Antoine Salomon, 2016. "Feasibility and individual rationality in two-person Bayesian games," International Journal of Game Theory, Springer;Game Theory Society, pages 11-36.
    5. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    6. Karl Wärneryd, 2014. "Observable Strategies, Commitments, and Contracts," CESifo Working Paper Series 5089, CESifo Group Munich.
    7. Andrea Attar & Eloisa Campioni & Gwenael Piaser, 2011. "Information Revelation in Competing Mechanism Games," CEIS Research Paper 205, Tor Vergata University, CEIS, revised 04 Jul 2011.
    8. Forges, Françoise, 2013. "A folk theorem for Bayesian games with commitment," Games and Economic Behavior, Elsevier, vol. 78(C), pages 64-71.
    9. Peters, Michael, 2015. "Reciprocal contracting," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 102-126.
    10. Szentes, Balázs, 2015. "Contractible contracts in common agency problems," LSE Research Online Documents on Economics 66071, London School of Economics and Political Science, LSE Library.

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