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Dynamic Contracting under Permanent and Transitory Private Information

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  • Ungureanu, S.

Abstract

To understand how firms create and maintain long term relationships with consumers, or how procurement relations evolve over time, it is useful to study a dynamic variant of the classical two-type-buyer contract in mechanism design. It is less trivial and more interesting if the utility determinant (or utility type) is not fixed or completely random, and fair assumptions are that it is either stochastic, or given by a distribution whose parameters are common knowledge. The first approach is that of Battaglini (2005), while the second is pursued in this paper. With two possible types of buyers, the buyer more likely to have a high utility type will receive the first-best allocations, while the other will receive the first best only if he has the high utility type.

Suggested Citation

  • Ungureanu, S., 2013. "Dynamic Contracting under Permanent and Transitory Private Information," Working Papers 13/07, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:13/07
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    References listed on IDEAS

    as
    1. Pascal Courty & Li Hao, 2000. "Sequential Screening," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 697-717.
    2. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    3. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
    4. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
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    Keywords

    dynamic contracting; mechanism design; truthful reporting; information structure; learning;
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