Optimal contracts with contingent allocation

Ottorino Chillemi, Stefano Galavotti () and Benedetto Gui

Economics Letters, 2020, vol. 192, issue C

Abstract: We study the contractual design problem of a seller that observes an ex-post signal correlated with the buyer’s valuation and can make the allocation, but not payments, contingent on it. We show that, to maximize her profit, the seller should offer a menu of contracts whereby the good is transferred to the buyer only if the signal is sufficiently low. The welfare implications of these contracts are also discussed.

Keywords: Ex-post information; signal; contingent contracts (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:192:y:2020:i:c:s016517652030149x

DOI: 10.1016/j.econlet.2020.109202

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