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Full Pooling in Multi-Period Contracting with Adverse Selection and Noncommitment

Author

Listed:
  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Fluet, Claude

    (Université Laval)

Abstract

This paper analyses multi-period regulation or procurement policies under asymmetric information between the regulator and regulated firms. As well known in the literature, some degree of separation is always optimal under any form of commitment. In contrast, we show that full pooling is optimal under noncommitment when the discount factor is sufficiently high. We also discuss the meaning of full pooling under double randomization. Finally, we provide a graphical analysis of the second-best policy in terms of the regulator's commitment capacity.

Suggested Citation

  • Dionne, Georges & Fluet, Claude, 1999. "Full Pooling in Multi-Period Contracting with Adverse Selection and Noncommitment," Working Papers 99-4, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:1999_004
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    More about this item

    Keywords

    Incentives; multi-period contracts; regulation; procurement; renegotiation proofness; asymmetric information; full pooling;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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