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Robust pooling for contracting models with asymmetric information

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  • Kerkkamp, R.B.O.
  • van den Heuvel, W.
  • Wagelmans, A.P.M.

Abstract

We consider a principal-agent contracting model between a seller and a buyer with single-dimensional private information. The buyer’s type follows a continuous distribution on a bounded interval. We present a new modelling approach where the seller offers a menu of finitely many contracts to the buyer. The approach distinguishes itself from existing methods by pooling the buyer types using a partition. That is, the seller first chooses the number of contracts offered and then partitions the set of buyer types into subintervals. All types in a subinterval are pooled and offered the same contract by the design of our menu.

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  • Kerkkamp, R.B.O. & van den Heuvel, W. & Wagelmans, A.P.M., 2019. "Robust pooling for contracting models with asymmetric information," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1036-1051.
    • Handle: RePEc:eee:ejores:v:273:y:2019:i:3:p:1036-1051
    DOI: 10.1016/j.ejor.2018.08.041
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    1. Kerkkamp, R.B.O. & van den Heuvel, W. & Wagelmans, A.P.M., 2018. "Balancing Expected and Worst-Case Utility in Contracting Models with Asymmetric Information and Pooling," Econometric Institute Research Papers EI 2018-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

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