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Renegotiation‐proof mechanism design with imperfect type verification

journal contribution
posted on 2022-09-29, 10:15 authored by Francisco SilvaFrancisco Silva
I consider the interaction between an agent and a principal who is unable to commit not to renegotiate. The agent's type affects only the principal's utility. The principal has access to a public signal, correlated with the agent's type, that can be used to (imperfectly) verify the agent's report. I define renegotiation‐proof mechanisms and characterize the optimal one. The main finding of this paper is that the optimal renegotiation‐proof mechanism induces pooling at the top, i.e., types above a certain threshold report to be the largest type, while types below the threshold report truthfully.

History

Journal

Theoretical Economics

Volume

14

Issue

3

Pagination

971 - 1014

Publisher

Econometric Society

Location

Cleveland, Ohio

ISSN

1933-6837

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

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