Renegotiation proof mechanism design with imperfect type verification

Francisco Silva

No 505, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: I consider the interaction between an agent and a principal who is unable to commit not to renegotiate. The agent’s type only affects the principal’s utility. The principal has access to a public signal, correlated with the agent’s type, which can be used to (imperfectly) verify the agent’s report. I define renegotiation proof mechanisms and characterize the optimal one: there is pooling on top – types above a threshold report to be the largest type, while types below the threshold report truthfully - and no regret on top - the mechanism is sequentially optimal for the principal after the agent reports to be the largest type.

JEL-codes: D8 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:505

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