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Mechanism Design with Non-Contractible Information

Author

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  • Seung Han Yoo

    () (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

A principal faces an agent with non-contractible information. The principal considers mechanisms with an informed manager. The main results show that a direct mechanism, by characterizing incentives of the manager, weakly dominates the optimal "selling the project" contract. The nature of incompleteness suggests a foundation of incomplete contract, the agent's information structure, and thus demands a different solution, an informational hierarchical structure with the manager. This result has new implications for the theory of the firm, as opposed to what the standard mechanism theory offers.

Suggested Citation

  • Seung Han Yoo, 2016. "Mechanism Design with Non-Contractible Information," Discussion Paper Series 1604, Institute of Economic Research, Korea University.
  • Handle: RePEc:iek:wpaper:1604
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1604.pdf
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    References listed on IDEAS

    as
    1. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
    2. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    3. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    4. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
    5. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    6. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    7. Dilip Mookherjee & Masatoshi Tsumagari, 2014. "Mechanism Design with Communication Constraints," Journal of Political Economy, University of Chicago Press, vol. 122(5), pages 1094-1129.
    8. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    9. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    10. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    11. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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    Citations

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    Cited by:

    1. Seung Han Yoo, 2017. "Optimal Design for an Informed Auctioneer," Discussion Paper Series 1702, Institute of Economic Research, Korea University.
    2. Seung Han Yoo, 2016. "Signaling with Two Correlated Characteristics," Discussion Paper Series 1605, Institute of Economic Research, Korea University.

    More about this item

    Keywords

    Non-contractible information; Incomplete contract; Information structure;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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