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An undominated mechanism for a class of informed principal problems with common values

Listed author(s):
  • Balkenborg, Dieter
  • Makris, Miltiadis

In a class of informed principal problems with common values, we define iteratively a particular allocation which we call the assured allocation. It is comparatively easy to calculate and straightforward to interpret. It always exists, is unique and continuous in the priors. It is undominated, i.e. efficient among the different types of the principal subject to the agent's interim participation constraint. It is a perfect Bayesian equilibrium of the three-stage game in Myerson [16] and Maskin and Tirole [14]. It dominates the RSW allocation as defined in Maskin and Tirole [14] and coincides with it when the latter is undominated. It is the unique neutral optimum as defined in Myerson [16] when there are only two types. When the assured allocation is separating, then it is a neutral optimum with three or more types. It is an equilibrium of a game of competition in a market with adverse selection.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 157 (2015)
Issue (Month): C ()
Pages: 918-958

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Handle: RePEc:eee:jetheo:v:157:y:2015:i:c:p:918-958
DOI: 10.1016/j.jet.2015.02.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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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. Cella, Michela, 2008. "Informed principal with correlation," Games and Economic Behavior, Elsevier, vol. 64(2), pages 433-456, November.
  3. Myerson, Roger B, 1984. "Two-Person Bargaining Problems with Incomplete Information," Econometrica, Econometric Society, vol. 52(2), pages 461-487, March.
  4. Bergemann, Dirk & Morris, Stephen, 2008. "Ex post implementation," Games and Economic Behavior, Elsevier, vol. 63(2), pages 527-566, July.
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  6. Mylovanov, Timofiy & Tröger, Thomas, 2012. "Informed principal problems in generalized private values environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
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  8. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
  9. Ching-To Albert Ma, 1994. "Renegotiation and Optimality in Agency Contracts," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 109-129.
  10. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
  11. 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.
  12. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
  13. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
  14. 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.
  15. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325.
  16. Tymofiy Mylovanov & Thomas Tröger, 2014. "Mechanism Design by an Informed Principal: Private Values with Transferable Utility," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1668-1707.
  17. Darrough, Masako N & Stoughton, Neal M, 1989. "A Bargaining Approach to Profit Sharing in Joint Ventures," The Journal of Business, University of Chicago Press, vol. 62(2), pages 237-270, April.
  18. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  19. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
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