original papers: Implementation of optimal contracts under adverse selection

Pablo Amoros () and Bernardo Moreno ()

Review of Economic Design, 2001, vol. 6, issue 1, pages 41-61

Abstract: This paper studies a 2-agent, 2-type principal-multiagent model of adverse selection under the assumption that the agents each have complete information. We construct a mechanism implementing the first-best contracts in Nash equilibrium that: satisfies a condition related to individual rationality, is renegotiation-proof, has a small-sized message space, achieves unique implementation and satisfies undomination of Nash equilibrium strategies. Moreover, we prove that other requirements which relate to individual rationality (different from the one satisfied by our mechanism) are not compatible with implementation of the first-best contracts.

Keywords: Adverse selection; Contract theory; Implementation theory; Nash equilibrium (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2001 Written
Note: Received: 27 July 1998 / Accepted: 26 May 2000

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