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- Implementation Of Optimal Contracts Under Adverse Selection

Author

Listed:
  • Bernarda Zamora

    (Universidad de Alicante)

  • Pablo Amorós

    (Universidad de Alicante)

Abstract

This paper studies the principal-multiagent model of a firm subject to adverse selection. We focus on agents who have complete information. We propose some desirable properties to be satisfied by mechanisms implementing the first-best in Nash equilibrium: (i) enforceability (a property related with the individual rationality of the mechanism), (ii) renegotiation-proofness, (iii) small strategy spaces, (iv) unique implementation, (v) unique best-reply and (vi) no mixed strategies. We prove that enforceability is not compatible with renegotiation-proofness or the unique best-reply property. Then we propose two mechanisms. The first one satisfies properties (i), (ii) and (iv). The second mechanism verifies all properties but enforceability.

Suggested Citation

  • Bernarda Zamora & Pablo Amorós, 1998. "- Implementation Of Optimal Contracts Under Adverse Selection," Working Papers. Serie AD 1998-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:1998-25
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1998-25.pdf
    File Function: Fisrt version / Primera version, 1998
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    References listed on IDEAS

    as
    1. Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
    2. Bhaskar Dutta & Arunava Sen, 1991. "A Necessary and Sufficient Condition for Two-Person Nash Implementation," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 121-128.
    3. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
    4. Matthew O. Jackson, 1992. "Implementation in Undominated Strategies: A Look at Bounded Mechanisms," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 757-775.
    5. Sappington, David & Demski, Joel S., 1983. "Multi-agent control in perfectly correlated environments," Economics Letters, Elsevier, vol. 13(4), pages 325-330.
    6. Glover Jonathan, 1994. "A Simpler Mechanism That Stops Agents from Cheating," Journal of Economic Theory, Elsevier, vol. 62(1), pages 221-229, February.
    7. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, vol. 58(5), pages 1083-1099, September.
    8. Reichelstein, Stefan & Reiter, Stanley, 1988. "Game Forms with Minimal Message Spaces," Econometrica, Econometric Society, vol. 56(3), pages 661-692, May.
    9. Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
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