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

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  • Balkenborg, Dieter
  • Makris, Miltiadis

Abstract

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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  • Balkenborg, Dieter & Makris, Miltiadis, 2015. "An undominated mechanism for a class of informed principal problems with common values," Journal of Economic Theory, Elsevier, vol. 157(C), pages 918-958.
    • Handle: RePEc:eee:jetheo:v:157:y:2015:i:c:p:918-958
    DOI: 10.1016/j.jet.2015.02.007
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    References listed on IDEAS

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    3. Charles Z. Zheng, 2016. "Goethe's secret reserve price," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(1), pages 41-48, March.
    4. Jin Yeub Kim, 2021. "A Unique and Robust Social Contract: An Application to Negotiations with Probabilistic Conflicts," Working papers 2021rwp-187, Yonsei University, Yonsei Economics Research Institute.
    5. Anastasios Dosis, 2022. "On the informed principal model with common values," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 792-825, December.
    6. Nishimura, Takeshi, 2022. "Informed principal problems in bilateral trading," Journal of Economic Theory, Elsevier, vol. 204(C).
    7. Heiko Karle & Christian Staat, 2013. "Signaling Quality with Initially Reduced Royalty Rates," Working Papers ECARES ECARES 2013-44, ULB -- Universite Libre de Bruxelles.
    8. Jin Yeub Kim, 2020. "Efficient and Neutral Mechanisms in Almost Ex Ante Bargaining Problems," Working papers 2020rwp-174, Yonsei University, Yonsei Economics Research Institute.
    9. Kim, Jin Yeub, 2017. "Interim third-party selection in bargaining," Games and Economic Behavior, Elsevier, vol. 102(C), pages 645-665.
    10. Jin Yeub Kim, 2022. "Neutral public good mechanisms," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-16, April.
    11. Frances Xu Lee & Yuk‐fai Fong, 2017. "Signaling by an informed service provider," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 955-968, December.
    12. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    13. Takeshi Nishimura, 2019. "Informed Principal Problems in Bilateral Trading," Papers 1906.10311, arXiv.org, revised Feb 2022.
    14. Mylovanov, Timofiy & Troger, Thomas E., 2012. "Informed principal problems in generalized private values environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
    15. Jin Yeub Kim, 2019. "Neutral Public Good Mechanisms," Working papers 2019rwp-159, Yonsei University, Yonsei Economics Research Institute.
    16. Xin Zhao, 2023. "Auction design by an informed seller: A foundation of reserve price signalling," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1161-1190, August.
    17. Vasconcelos, Luís, 2017. "A signaling-based theory of contractual commitment to relationships," European Economic Review, Elsevier, vol. 93(C), pages 123-138.

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    More about this item

    Keywords

    Mechanism design; Informed principal; Common values; Neutral optimum;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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