- IMPLEMENTATION OF OPTIMAL CONTRACTS UNDER ADVERSE SELECTION

Bernarda Zamora and Pablo Amoros
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Bernarda Zamora: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper studies the principal-multiagent model of a firm subject to adverse selection. We focus on agents who have complete information. We propose some desirable properties to be satisfied by mechanisms implementing the first-best in Nash equilibrium: (i) enforceability (a property related with the individual rationality of the mechanism), (ii) renegotiation-proofness, (iii) small strategy spaces, (iv) unique implementation, (v) unique best-reply and (vi) no mixed strategies. We prove that enforceability is not compatible with renegotiation-proofness or the unique best-reply property. Then we propose two mechanisms. The first one satisfies properties (i), (ii) and (iv). The second mechanism verifies all properties but enforceability.

Keywords: adverse selection; contract theory; implementation theory (search for similar items in EconPapers)
Pages: 44 pages
Date: 1998-12
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1998-25

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