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Neutral Optima in Informed Principal Problems with Common Values

Author

Listed:
  • Dieter Balkenborg

    (Department of Economics, University of Exeter)

  • Miltiadis Makris

    (Department of Economics, University of Leicester)

Abstract

In a class of informed principal problems with common values often used in applications we de…fine a particular mechanism which we call the assured allocation. It is always undominated, i.e. efficient among the different types of the principal. We show it is a perfect Bayesian equilibrium allocation of the three-stage game studied in Maskin and Tirole (1992) that coincides with the Rothschild-Stiglitz- Wilson allocation when the latter is undominated. Under familiar conditions on hazard rates we show that the assured allocation is a neutral optimum in the sense of Myerson (1983).

Suggested Citation

  • Dieter Balkenborg & Miltiadis Makris, 2009. "Neutral Optima in Informed Principal Problems with Common Values," Discussion Papers 0902, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0902
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    More about this item

    Keywords

    Neutral optimum; mechanism design; informed principal;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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