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Mechanism Design by an Informed Principal: Private Values with Transferable Utility

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  • Tymofiy Mylovanov
  • Thomas Tröger

Abstract

We provide a solution to the informed-principal problem in the independent private values setting with monetary transfers. The principal's private information creates signaling considerations that may distort the implemented allocation. We show that there is no distortion: all principal types implement an allocation that is optimal for the principal ex ante, before he/she learns his/her type. As an application, we consider settings with linear utility. For bilateral exchange in which the principal is one of the traders, the solution is a combination of a participation fee, a buy-out option for the principal, and a resale stage with posted prices.

Suggested Citation

  • Tymofiy Mylovanov & Thomas Tröger, 2014. "Mechanism Design by an Informed Principal: Private Values with Transferable Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1668-1707.
    • Handle: RePEc:oup:restud:v:81:y:2014:i:4:p:1668-1707
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    File URL: http://hdl.handle.net/10.1093/restud/rdu019
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    Citations

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    Cited by:

    1. Koessler, Frédéric & Skreta, Vasiliki, 2016. "Informed seller with taste heterogeneity," Journal of Economic Theory, Elsevier, vol. 165(C), pages 456-471.
    2. Dirk Bergemann & Stephen Morris, 2019. "Information Design: A Unified Perspective," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 44-95, March.
    3. Koessler, Frederic & Skreta, Vasiliki, 2019. "Selling with evidence," Theoretical Economics, Econometric Society, vol. 14(2), May.
    4. Charles Z. Zheng, 2016. "Goethe's secret reserve price," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(1), pages 41-48, March.
    5. Anastasios Dosis, 2022. "On the informed principal model with common values," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 792-825, December.
    6. Suehyun Kwon, 2018. "Selling Complementary Goods: Information and Products," CESifo Working Paper Series 7394, CESifo.
    7. Celik, Gorkem & Yilankaya, Okan, 2017. "Resale in second-price auctions with costly participation," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 148-174.
    8. Jin Yeub Kim, 2022. "Neutral public good mechanisms," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-16, April.
    9. Dirk Bergemann & Alessandro Bonatti & Alex Smolin, 2018. "The Design and Price of Information," American Economic Review, American Economic Association, vol. 108(1), pages 1-48, January.
    10. Takeshi Nishimura, 2019. "Informed Principal Problems in Bilateral Trading," Papers 1906.10311, arXiv.org, revised Feb 2022.
    11. Eric van Damme & Xu Lang, 2022. "Two-Person Bargaining when the Disagreement Point is Private Information," Papers 2211.06830, arXiv.org, revised Jan 2024.
    12. Markus Brunnermeier & Rohit Lamba & Carlos Segura-Rodriguez, 2020. "Inverse Selection," Working Papers 2020-50, Princeton University. Economics Department..
    13. Nishimura, Takeshi, 2022. "Informed principal problems in bilateral trading," Journal of Economic Theory, Elsevier, vol. 204(C).
    14. Troyan, Peter, 2017. "Collusion and signaling in auctions with interdependent values," Journal of Economic Theory, Elsevier, vol. 170(C), pages 319-345.
    15. Andriy Zapechelnyuk, 2023. "On the equivalence of information design by uninformed and informed principals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1051-1067, November.
    16. Balkenborg, Dieter & Makris, Miltiadis, 2015. "An undominated mechanism for a class of informed principal problems with common values," Journal of Economic Theory, Elsevier, vol. 157(C), pages 918-958.
    17. Bianchi, Milo & Yamashita, Takuro, 2024. "Optimal Investment in Network Infrastructures," TSE Working Papers 1560, Toulouse School of Economics (TSE).
    18. Teddy Mekonnen, 2021. "Informed principal, moral hazard, and limited liability," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 119-142, April.
    19. Wagner, Christoph & Mylovanov, Tymofiy & Tröger, Thomas, 2015. "Informed-principal problem with moral hazard, risk neutrality, and no limited liability," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 280-289.
    20. Suehyun Kwon, 2019. "Informed-Principal Problem in Mechanisms with Limited Commitment," CESifo Working Paper Series 7513, CESifo.
    21. Francesco Giovannoni & Toomas Hinnosaar, 2022. "Pricing Novel Goods," Papers 2208.04985, arXiv.org, revised Aug 2024.
    22. Suehyun Kwon, 2019. "Revelation Principle with Persistent Correlated Types: Impossibility Result," CESifo Working Paper Series 7782, CESifo.
    23. Xin Zhao, 2023. "Auction design by an informed seller: A foundation of reserve price signalling," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1161-1190, August.
    24. Mingshi Kang & Charles Z. Zheng, 2023. "Optimal design for redistributions among endogenous buyers and sellers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1141-1180, May.
    25. Vasconcelos, Luís, 2017. "A signaling-based theory of contractual commitment to relationships," European Economic Review, Elsevier, vol. 93(C), pages 123-138.

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