Informed principal with correlation
In this paper we analyze an adverse selection model with one principal and one agent, who are both risk neutral and have private information. We assume that the private information of the principal is correlated with that of the agent. The main result of the paper is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public. The principal can design such a contract because she exploits the fact that her type is an informative signal on the agent's one. We fully characterize the equilibrium of the game in which different types of principal offer the same menu of contracts that leaves the agent uninformed about the principal's type. This gives more freedom to the principal when setting the transfers because the agent's constraints need to hold only at an interim stage.
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- Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
- 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.
- Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
- Eric Maskin & Kevin W.S. Roberts, 2006.
"On the Fundamental Theorems of General Equilibrium,"
Economics Working Papers
0074, Institute for Advanced Study, School of Social Science.
- Eric Maskin & Kevin Roberts, 2008. "On the fundamental theorems of general equilibrium," Economic Theory, Springer, vol. 35(2), pages 233-240, May.
- Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
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