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Imperfect Commitment and the Revelation Principle

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  • Helmut Bester
  • Roland Strausz

Abstract

This paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism. We show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent. In contrast with the conventional revelation principle, however, the agent may not use this strategy with probability one. Our results provide a basic tool for studying dynamic contracting problems between a principal and a single agent. Also, we indicate that the revelation principle cannot be extended to a framework with multiple agents and limited commitment.

Suggested Citation

  • Helmut Bester & Roland Strausz, "undated". "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers.
    • Handle: RePEc:bef:lsbest:004
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    File URL: http://userpage.fu-berlin.de/%7Elsbester/papers/revel.pdf
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    References listed on IDEAS

    as
    1. Green, Jerry R & Laffont, Jean-Jacques, 1987. "Posterior Implementability in a Two-Person Decision Problem," Econometrica, Econometric Society, vol. 55(1), pages 69-94, January.
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    3. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-438, March.
    4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    5. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(2), pages 173-191.
    6. Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 589-619.
    7. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    8. Oliver D. Hart & Jean Tirole, 1988. "Contract Renegotiation and Coasian Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 509-540.
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    More about this item

    Keywords

    revelation principle; mechanism design; limited commitment; asymmetric information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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