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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
Date of revision:
Publication status: Published in NBER Working Paper Series
Handle: RePEc:hrv:faseco:3708929
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  1. 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.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. van Damme, E.E.C. & Hurkens, J.P.M., 1997. "Games with imperfectly observable commitment," Other publications TiSEM 98d6e8cb-38a1-4341-b53e-d, Tilburg University, School of Economics and Management.
  4. repec:oup:restud:v:66:y:1999:i:1:p:139-49 is not listed on IDEAS
  5. Myerson, Roger B, 1984. "Two-Person Bargaining Problems with Incomplete Information," Econometrica, Econometric Society, vol. 52(2), pages 461-87, March.
  6. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
  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. Kim-Sau Chung & Jeffrey C. Ely, 2003. "Implementation with Near-Complete Information," Econometrica, Econometric Society, vol. 71(3), pages 857-871, 05.
  9. 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.
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