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Definable and Contractible Contracts

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  • Peters, Michael
  • Szentes, Balazs

Abstract

This paper analyzes Bayesian normal form games in which players write contracts that condition their actions on the contracts of the other players. These contracts are required to be representable in a formal language. This is accomplished by constructing contracts which are definable functions of the Godel code of every other player's contract. We provide a complete characterization of the set of allocations supportable as pure strategy Bayesian equilibrium of this contracting game. When information is complete, this characterization provides a folk theorem. In general, the set of supportable allocations is smaller than the set supportable by a centralized mechanism designer.

Suggested Citation

  • Peters, Michael & Szentes, Balazs, 2009. "Definable and Contractible Contracts," Microeconomics.ca working papers michael_peters-2009-7, Vancouver School of Economics, revised 13 May 2010.
    • Handle: RePEc:ubc:pmicro:michael_peters-2009-7
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    File URL: http://montoya.econ.ubc.ca/mike/folk_theorem.pdf
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    References listed on IDEAS

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    1. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-1797, November.
    2. , & ,, 2010. "Common agency and public good provision under asymmetric information," Theoretical Economics, Econometric Society, vol. 5(2), May.
    3. Michael L. Katz, 2006. "Observable Contracts as Commitments: Interdependent Contracts and Moral Hazard," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 685-706, September.
    4. Takuro Yamashita, 2010. "Mechanism Games With Multiple Principals and Three or More Agents," Econometrica, Econometric Society, vol. 78(2), pages 791-801, March.
    5. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    6. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-1372, September.
    7. Han, Seungjin, 2006. "Menu theorems for bilateral contracting," Journal of Economic Theory, Elsevier, vol. 131(1), pages 157-178, November.
    8. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    9. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
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    Cited by:

    1. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    2. Han, Seungjin, 2015. "Robust competitive auctions," Economics Letters, Elsevier, vol. 136(C), pages 207-210.
    3. Juan I. Block & David K. Levine, 2016. "Codes of conduct, private information and repeated games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 971-984, November.
    4. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    5. Françoise Forges & Ulrich Horst & Antoine Salomon, 2016. "Feasibility and individual rationality in two-person Bayesian games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(1), pages 11-36, March.
    6. Attar, Andrea & Campioni, Eloisa & Piaser, Gwenaël, 2019. "Private communication in competing mechanism games," Journal of Economic Theory, Elsevier, vol. 183(C), pages 258-283.
    7. Karl Wärneryd, 2014. "Observable Strategies, Commitments, and Contracts," CESifo Working Paper Series 5089, CESifo.
    8. Seungjin Han, 2020. "Quasi Ex-Post Equilibrium in Competing Mechanisms," Department of Economics Working Papers 2020-11, McMaster University.
    9. Forges, Françoise, 2013. "A folk theorem for Bayesian games with commitment," Games and Economic Behavior, Elsevier, vol. 78(C), pages 64-71.
    10. Andrea Attar & Eloisa Campioni & Thomas Mariotti & Alessandro Pavan, 2021. "Keeping the Agents in the Dark: Private Disclosures in Competing Mechanisms," CEIS Research Paper 519, Tor Vergata University, CEIS, revised 21 Oct 2021.
    11. Attar, Andrea & Campioni, Eloisa & Mariotti, Thomas & Piaser, Gwenaël, 2021. "Competing mechanisms and folk theorems: Two examples," Games and Economic Behavior, Elsevier, vol. 125(C), pages 79-93.
    12. Severinov, Sergei & Virag, Gabor, 2024. "Who wants to be an auctioneer?," Journal of Economic Theory, Elsevier, vol. 217(C).
    13. Gorkem Celik & Michael Peters, 2016. "Reciprocal relationships and mechanism design," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 374-411, February.
    14. Arieli, Itai & Babichenko, Yakov & Tennenholtz, Moshe, 2017. "Sequential commitment games," Games and Economic Behavior, Elsevier, vol. 105(C), pages 297-315.
    15. Li, Anqi & Xing, Yiqing, 2020. "Intermediated implementation," European Economic Review, Elsevier, vol. 123(C).
    16. Andrea Attar & Eloisa Campioni & Gwenael Piaser, 2011. "Information Revelation in Competing Mechanism Games," CEIS Research Paper 205, Tor Vergata University, CEIS, revised 04 Jul 2011.
    17. Lavi, Ron & Shamash, Elisheva S., 2022. "Principal-agent VCG contracts," Journal of Economic Theory, Elsevier, vol. 201(C).
    18. Peters, Michael, 2015. "Reciprocal contracting," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 102-126.
    19. Peck, James, 2018. "Competing mechanisms with multi-unit consumer demand," Journal of Economic Theory, Elsevier, vol. 177(C), pages 126-161.
    20. Szentes, Balázs, 2015. "Contractible contracts in common agency problems," LSE Research Online Documents on Economics 66071, London School of Economics and Political Science, LSE Library.

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