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On the Optimality of Privacy in Sequential Contracting

Listed author(s):
  • Giacomo Calzolari
  • Alessandro Pavan

This paper studies the exchange of information between two principals who contract sequentially with the same agent, as in the case of a buyer who purchases from multiple sellers. We show that when (a) the upstream principal is not personally interested in the downstream level of trade, (b) the agent’s valuations are positively correlated, and (c) preferences in the downstream relationship are separable, then it is optimal for the upstream principal to offer the agent full privacy. On the contrary, when any of these conditions is violated, there exist preferences for which disclosure is strictly optimal, even if the downstream principal does not pay for the information. We also examine the effects of disclosure on welfare and show that it does not necessarily reduce the agent’s surplus in the two relationships and in some cases may even yield a Pareto improvement. The paper describes this condition and its implications.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/1404.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1404.

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Date of creation: Mar 2005
Handle: RePEc:nwu:cmsems:1404
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Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014

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Web page: http://www.kellogg.northwestern.edu/research/math/
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  1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
  2. Helmut Bester & Roland Strausz, "undated". "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers.
  3. Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
  4. Bergemann, Dirk & Valimaki, Juuso, 2003. "Dynamic common agency," Journal of Economic Theory, Elsevier, vol. 111(1), pages 23-48, July.
  5. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-1372, September.
  6. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
  7. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
  8. Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
  9. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
  10. Alessandro Acquisti & Hal R. Varian, 2005. "Conditioning Prices on Purchase History," Marketing Science, INFORMS, vol. 24(3), pages 367-381, May.
  11. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
  12. David Martimort, 1992. "Multi-principaux avec anti-sélection," Annals of Economics and Statistics, GENES, issue 28, pages 1-37.
  13. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
  14. Martimort, David, 1999. "Renegotiation Design with Multiple Regulators," Journal of Economic Theory, Elsevier, vol. 88(2), pages 261-293, October.
  15. Giacomo Calzolari & Alessandro Pavan, 2006. "Monopoly with resale," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 362-375, June.
  16. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
  17. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
  18. Charles Zhoucheng Zheng, 2002. "Optimal Auction with Resale," Econometrica, Econometric Society, vol. 70(6), pages 2197-2224, November.
  19. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
  20. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
  21. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  22. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
  23. repec:adr:anecst:y:1992:i:28:p:01 is not listed on IDEAS
  24. Prat, A. & Rustichini, A., 1998. "Sequential Common Agency," Discussion Paper 1998-95, Tilburg University, Center for Economic Research.
  25. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
  26. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-1175, September.
  27. Taylor, Curtis R., 2003. "Privacy in Competitive Markets," Working Papers 03-10, Duke University, Department of Economics.
  28. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
  29. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
  30. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, May.
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