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Bilateral Mechanism Design: Practical Contracting in Multi-Agency

  • Yu Chen

    ()

    (Nanjing University)

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    We modelize and investigate the analytical rationale of employing bilateral mechanism design, which simplifies collective mechanism design by ignoring relative information evaluation, in generalized multi-agency contracting games under Bayesian Nash equilibrium. We permit interdependent valuations, contract externalities, correlated types, and heterogeneous or different message sets of different agents. The delegation principle under Bayesian Nash equilibrium identifies that bilateral Bayesian mechanism design can be translated to delegated Bayesian menu design without loss of generality. We take advantage of interim-payoff-equivalence to provide economically interesting conditions on the primitives for the full equivalence in which bilateral mechanism design can be substituted for collective mechanism design. Our analysis can also incorporate individual rationality constraints. Moreover, we discuss the approximation of full equivalence and the case allowing primitive constraints across the contracts for different agents.

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    File URL: http://www.iub.edu/~caepr/RePEc/PDF/2013/CAEPR2013-003.pdf
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    Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2013-003.

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    Length: 35 pages
    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:inu:caeprp:2013003
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    1. Frank Page & Paulo Monteiro, 2001. "Three Principles of Competitive Nonlinear Pricing," Economics Bulletin, AccessEcon, vol. 28(11), pages A0.
    2. Page, Frank Jr., 1987. "The existence of optimal contracts in the principal-agent model," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 157-167, April.
    3. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
    4. Han, Seungjin, 2004. "Menu Theorems for Bilateral Contracting," Microeconomics.ca working papers han-04-01-29-10-05-13, Vancouver School of Economics, revised 29 Jan 2004.
    5. Dequiedt, V. & Martimort, D., 2007. "Mechanism design with private communication," Working Papers 200702, Grenoble Applied Economics Laboratory (GAEL).
    6. Page, Frank H, Jr, 1992. "Mechanism Design for General Screening Problems with Moral Hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 265-81, April.
    7. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
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