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Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case

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  • Mylovanov, Tymofiy
  • Tröger, Thomas

Abstract

We show that, in environments with independent private values and transferable utility, a privately informed principal can implement a contract that is ex-ante optimal for her. As an application, we consider a bilateral exchange environment (Myerson and Satterthwaite, 1983) in which the principal is one of the traders. If the property rights over the good are dispersed among the traders, the principal will implement a contract in which she is almost surely better off than if there were no uncertainty about her information. The optimal contract is a combination of a participation fee, a buyout option for the principal, and a resale stage with posted prices and, hence, is a generalization of the posted price that would be optimal if the principal's valuation were commonly known. We also provide a condition under which the principal implements the same contract regardless of whether the agents know her information or not.

Suggested Citation

  • Mylovanov, Tymofiy & Tröger, Thomas, 2013. "Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 437, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:437
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    File URL: https://epub.ub.uni-muenchen.de/17395/1/437.pdf
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    References listed on IDEAS

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    1. Eric W. Bond & Thomas A. Gresik, 1997. "Competition between asymmetrically informed principals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 227-240.
    2. Cella, Michela, 2008. "Informed principal with correlation," Games and Economic Behavior, Elsevier, pages 433-456.
    3. Beaudry, Paul, 1994. "Why an Informed Principal May Leave Rents to an Agent," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 821-832, November.
    4. Tilman Börgers & Peter Norman, 2009. "A note on budget balance under interim participation constraints: the case of independent types," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 477-489.
    5. Chade, Hector & Silvers, Randy, 2002. "Informed principal, moral hazard, and the value of a more informative technology," Economics Letters, Elsevier, vol. 74(3), pages 291-300, February.
    6. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
    7. Kfir Eliaz & Ran Spiegler, 2007. "A Mechanism-Design Approach to Speculative Trade," Econometrica, Econometric Society, pages 875-884.
    8. Eric W. Bond & Thomas A. Gresik, 1997. "Competition between asymmetrically informed principals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 227-240.
    9. Tilman Börgers & Peter Norman, 2009. "A note on budget balance under interim participation constraints: the case of independent types," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 477-489.
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    Cited by:

    1. Jakub Kastl & Marco Pagnozzi & Salvatore Piccolo, 2015. "Selling Information to Competitive Firms," CSEF Working Papers 420, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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