Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case

Tymofiy Mylovanov () and Thomas Tröger
Authors registered in the RePEc Author Service: Thomas Troeger

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We show that, in environments with independent private values and transferable utility, a privately informed principal can implement a contract that is ex-ante optimal for her. As an application, we consider a bilateral exchange environment (Myerson and Satterthwaite, 1983) in which the principal is one of the traders. If the property rights over the good are dispersed among the traders, the principal will implement a contract in which she is almost surely better off than if there were no uncertainty about her information. The optimal contract is a combination of a participation fee, a buyout option for the principal, and a resale stage with posted prices and, hence, is a generalization of the posted price that would be optimal if the principal's valuation were commonly known. We also provide a condition under which the principal implements the same contract regardless of whether the agents know her information or not.

Date: 2013
New Economics Papers: this item is included in nep-cta, nep-mic and nep-upt
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Mechanism design by an informed principal: the quasi-linear private-values case (2012)
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