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original papers : Implementation of optimal contracts under adverse selection

  • Pablo AmorÕs

    ()

    (Departamento TeorÎa e Historia EconÕmica, Universidad de MÂlaga, Campus El Ejido, E-29013, MÂlaga, Spain)

  • Bernardo Moreno

    ()

    (Departamento TeorÎa e Historia EconÕmica, Universidad de MÂlaga, Campus El Ejido, E-29013, MÂlaga, Spain)

This paper studies a 2-agent, 2-type principal-multiagent model of adverse selection under the assumption that the agents each have complete information. We construct a mechanism implementing the first-best contracts in Nash equilibrium that: satisfies a condition related to individual rationality, is renegotiation-proof, has a small-sized message space, achieves unique implementation and satisfies undomination of Nash equilibrium strategies. Moreover, we prove that other requirements which relate to individual rationality (different from the one satisfied by our mechanism) are not compatible with implementation of the first-best contracts.

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Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 6 (2001)
Issue (Month): 1 ()
Pages: 41-61

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Handle: RePEc:spr:reecde:v:6:y:2001:i:1:p:41-61
Note: Received: 27 July 1998 / Accepted: 26 May 2000
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