Neutral Optima in Informed Principal Problems with Common Values

Dieter Balkenborg and Miltiadis Makris

No 902, Discussion Papers from University of Exeter, Department of Economics

Abstract: In a class of informed principal problems with common values often used in applications we de…fine a particular mechanism which we call the assured allocation. It is always undominated, i.e. efficient among the different types of the principal. We show it is a perfect Bayesian equilibrium allocation of the three-stage game studied in Maskin and Tirole (1992) that coincides with the Rothschild-Stiglitz- Wilson allocation when the latter is undominated. Under familiar conditions on hazard rates we show that the assured allocation is a neutral optimum in the sense of Myerson (1983).

Keywords: Neutral optimum; mechanism design; informed principal (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2009
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