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Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem

  • Holden, Richard T.
  • Fudenberg, Drew
  • Aghion, Philippe

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore-Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3708929/Aghion_SubgamePerfect.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3708929.

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Date of creation: 2009
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Publication status: Published in NBER Working Paper Series
Handle: RePEc:hrv:faseco:3708929
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  1. van Damme, E.E.C. & Hurkens, J.P.M., 1994. "Games with imperfectly observable commitment," Discussion Paper 1994-64, Tilburg University, Center for Economic Research.
  2. Roger B. Myerson, 1982. "Two-Person Bargaining Problems with Incomplete Infonnation," Discussion Papers 527, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Kim-Sau Chung & Jeffrey C. Ely, 2001. "Implementation with Near-Complete Information," Discussion Papers 1332, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
  6. Jonathan Weinstein & Muhamet Yildiz, 2007. "A Structure Theorem for Rationalizability with Application to Robust Predictions of Refinements," Econometrica, Econometric Society, vol. 75(2), pages 365-400, 03.
  7. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  8. Eric Maskin & Jean Tirole, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 139-149.
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