optimal procurement mechanisms for an informed buyer this paper studies a buyer e g a government agency offering a procurement contract to a number of privately informed suppliers the buyer has private information about her demand for the product to be procured the optimal mechanisms for all types of the buyer are examined it is optimal for the buyer to reveal her demand information through the contract offer and use a first price sealed bid auction procedure to award the contract announcing her reserve price in advance any second price auction is shown to yield less expected surplus for the buyer than the optimal first price auction does when the buyer s marginal willingness to pay decreases with quantity

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

why an informed principal may leave rents to an agent this paper characterizes incentive contracts for the situation where a principal is privately informed about the technology governing an agency relationship in contrast to a standard principal agent relationship it is shown that a principal who values effort highly will choose to induce effort by paying a high base wage and low bonus payments moreover the equilibrium contract has the principal transferring rents to the agent even though contracting possibilities are unrestricted and both principal and agent are risk neutral consequently the informed principal framework is shown to provide a rational for the payment of efficiency wages copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

industrial strategy for late starters the experience of kenya tanzania and zambia based on the existing literature and the circumscribed data base this paper assesses the extent and nature of industrialization in three african countries after a promising start the drive to industrialize is now faltering the record is influenced much more by the colonial legacy and the macro economic situation of each country than by industrial policy it is clear that future industrial advance will depend heavily on the pace of rural development catering to world markets is not likely to provide a major stimulus for the industrial sector of many african economies in the near term future

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

optimal auction with resale this paper investigates the design of seller optimal auctions when winning bidders can attempt to resell the good in that case the optimal allocation characterized by myerson 1981 cannot be achieved without resale i find a sufficient and necessary condition for sincere bidding given the possibility of resale in two bidder cases i prove that the myerson allocation can be achieved under standard conditions supplemented with two assumptions with three or more bidders achieving the myerson allocation is more difficult i prove that it can be implemented in special cases in those cases the myerson allocation is generated through a sequence of resale auctions each optimally chosen by a reseller

meaning and credibility in cheap talk games i define neologism proofness a refinement of perfect bayesian equilibrium in cheap talk games it applies when players have a preexisting common language so that an unexpected message s literal meaning is clear and only credibility restricts communication i show that certain implausible equilibria are not neologism proof in some games no equilibrium is journal of economic literature classification numbers d83 d82 c73

when does it pay to get informed a repeated principal agent problem where both sides start out symmetrically uninformed about a productivity related parameter and where the principal has the option to costlessly learn this parameter is analyzed typically the principal delays the acquisition of information to avoid costly signaling if the learning decision of the principal is observable by the agent the expected delay is longer than if it is unobservable the discrepancy is due to the ability of the principal to avoid costly signaling when he is known to be uninformed

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

collusion and signaling in auctions with interdependent values abstract the standard approach to collusion in auctions posits an uninformed disinterested third party who prior to the auction designs and implements a collusive mechanism in environments where collusion agreements are likely to be both proposed and executed by the involved parties this approach may neglect information leakages from simply a proposal to collude we consider a model of collusion where one informed bidder proposes to another as in es and schummer 2004 we allow for general interdependent values and affiliated signals in contrast to third party modeling approaches collusion is inefficient from both a social perspective except for the case of pure common values and from the perspective of the ring both bidders are better off than without colluding but the surplus extracted from the seller is distributed asymmetrically between the bidders the potential for information leakage from proposing is bad for low types who reveal that they are weak competitors but is advantageous for high types because they are able to signal their strength we identify a so called briber s curse whereby acceptance of a proposal causes the proposer to downgrade her expected value for the object when there is additional competition in the form of bidders outside of the cartel the briber s curse significantly harms cartel profits and raises seller revenues

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

mechanism design by an informed principal private values with transferable utility we provide a solution to the informed principal problem in the independent private values setting with monetary transfers the principal s private information creates signaling considerations that may distort the implemented allocation we show that there is no distortion all principal types implement an allocation that is optimal for the principal ex ante before he she learns his her type as an application we consider settings with linear utility for bilateral exchange in which the principal is one of the traders the solution is a combination of a participation fee a buy out option for the principal and a resale stage with posted prices

the effect of inventory record inaccuracy in information exchange supply chains abstract the goal of this paper is to quantify the impact of inventory record inaccuracy on the dynamics of collaborative supply chains both in terms of operational performance i e order and inventory stability and customer service level to do so we model an information exchange supply chain under shrinkage errors in the inventory item recording activity of their nodes present the mathematical formulation of such supply chain model and conduct a numerical simulation assuming different levels of errors results clearly show that inventory record inaccuracy strongly compromises supply chain stability particularly when moving upwards in the supply chain important managerial insights can be extracted from this analysis such as the role of benefit sharing strategies in order to guarantee the advantage of investments in connectivity technologies

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

on the role of commitment in a principal agent relationship with an informed principal abstract in many circumstances a principal who has private information when contracting with an agent may perform some further action simultaneously with or after the agent s choice of an action we analyze such a principal agent relationship with an informed principal as a noncooperative game and distinguish two extensive form games first the principal can commit to his subsequent action at the time of contracting second the principal s announcement for his action is not binding at the time of performance we show that commitment by the principal leads to separation and no commitment leads to pooling journal of economic literatureclassification numbers c72 d82

an undominated mechanism for a class of informed principal problems with common values in a class of informed principal problems with common values we define iteratively a particular allocation which we call the assured allocation it is comparatively easy to calculate and straightforward to interpret it always exists is unique and continuous in the priors it is undominated i e efficient among the different types of the principal subject to the agent s interim participation constraint it is a perfect bayesian equilibrium of the three stage game in myerson 16 and maskin and tirole 14 it dominates the rsw allocation as defined in maskin and tirole 14 and coincides with it when the latter is undominated it is the unique neutral optimum as defined in myerson 16 when there are only two types when the assured allocation is separating then it is a neutral optimum with three or more types it is an equilibrium of a game of competition in a market with adverse selection

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

asymmetric first price auctions abstract a new approach to asymmetric first price auctions is proposed which circumvents the need to examine bidding strategies directly specifically the ratio of bidders endogenous payoffs is analyzed and compared to the ratio of the exogenous distribution functions that describe beliefs most of the results are inferred from this comparison in the existing theoretical literature assumptions of first order stochastic dominance or stronger imply that the latter ratio has very specific properties but no such assumptions are imposed here it is proven that first order stochastic dominance is necessary for bidding strategies not to cross when this assumption is relaxed in the numerical literature it is done in a manner that leads to exactly one crossing however it is straightforward to construct examples with several crossings finally bid distributions will cross in auctions with two bidders whenever second order but not first order stochastic dominance applies

on the evolution of attitudes towards risk in winner take all games abstract a long standing conjecture is that winner take all games such as patent races lead to the survival of risk takers and the extinction of risk averters in many species a winner take all game determines the males right to reproduce and the same argument suggests that males will evolve to be risk takers psychological and sociological evidence buttresses the argument that males are more risk taking than females using an evolutionary model of preference formation we investigate to what extent evolution leads to risk taking in winner take all environments journal of economic literature classification numbers c7 d8

gathering information before signing a contract after being offered a contract an agent has the possibility to observe the state of nature this enables him to refuse the contract in unfavorable states but burdens him with an observation cost the authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms later they show that the principal finds it profitable to organize competition between several agents even though he has monopoly power and can push a single agent down to his reservation utility copyright 1992 by american economic association

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

relational contracts and the value of relationships this article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known i consider a principal agent setting where the principal has persistent private information about her outside option i show that if the principal has the bargaining power she wants to understate her outside option to provide strong incentives and then renege on promised payments while if the uninformed agent has the bargaining power the principal wants to overstate her outside option to capture more surplus i characterize how information is revealed how the relationship evolves and how this depends on bargaining power jel c78 d82 d83 d86

informed principal and countervailing incentives it has been shown by maskin and tirole 1990 proposition 11 that with quasi linear preferences and private values an informed principal neither gains nor loses if her private information is revealed before contracting takes place the note shows that this result may not hold when the agent faces countervailing incentives

auction design with endogenously correlated buyer types abstract this paper studies optimal auction design when the seller can affect the buyers valuations through an unobservable ex ante investment the key insight is that the optimal mechanism may have the seller play a mixed investment strategy so as to create correlation between the buyers otherwise conditionally independent valuations assuming that the seller announces the mechanism before investing the paper establishes conditions on the investment technology so that a mechanism exists which leaves buyers no information rent and leaves the seller indifferent between his investments under these conditions the seller can in fact extract the first best surplus almost fully

the design and price of information abstract a data buyer faces a decision problem under uncertainty he can augment his initial private information with supplemental data from a data seller his willingness to pay for supplemental data is determined by the quality of his initial private information the data seller optimally offers a menu of statistical experiments we establish the properties that any revenue maximizing menu of experiments must satisfy every experiment is a non dispersed stochastic matrix and every menu contains a fully informative experiment in the cases of binary states and actions or binary types we provide an explicit construction of the optimal menu of experiments jel d42 d81 d82 d83

informed principal moral hazard and the value of a more informative technology we analyze a principal agent model with moral hazard in which the principal has private information about the technology we characterize perfect bayesian equilibria of the contracting game that possess the following properties i a principal with a more informative technology ends up earning less profits than a principal with a less informative one does ii compared to the complete information case the actions implemented by the privately informed principal can be distorted iii the agent can end up being better off when the principal has private information

informed seller with taste heterogeneity consider a seller with a single indivisible good facing a buyer whose willingness to pay depends on his privately known taste and on product characteristics privately known by the seller what selling procedure can arise as an equilibrium of the game in which the seller strategically chooses mechanisms conditional on his information we characterize the set of equilibrium outcomes and establish that ex ante revenue maximizing mechanisms are in this set there is generally a continuum of revenue ranked equilibrium outcomes focusing on the revenue maximizing equilibrium we show that the seller in general benefits from private information and does not benefit from committing to a disclosure or a certification technology we also provide conditions under which the privacy of the seller s information does not affect revenue

asymmetric auctions with resale we study first and second price auctions with resale in a model with indepen dent private values with asymmetric bidders the resulting inefficiencies create a motive for post auction trade which in our model takes place via monopoly pricing the winner makes a take it or leave it offer to the loser we show a a first price auction with resale has a unique monotonic equilibrium and b with resale the expected revenue from a first price auction exceeds that from a second price auction the inclusion of resale possibilities thus permits a gen eral revenue ranking of the two auctions that is not available when these are excluded jel d44

a note on the seller s optimal mechanism in bilateral trade with two sided incomplete information it is shown with an example that in bilateral trade problems with two sided incomplete information some seller types may obtain higher expected payos in mechanisms other than the one where they make a take it or leave it oer contrary to popular belief if one looks at the mechanism selection problem of the informed seller then the op timality of a take it or leave it oer for the seller is restored journal of economic literature classi cation numbers c72 c78 d82

bayesian and dominant strategy implementation in the independent private values model we prove in the standard independent private values model that the outcome in terms of interim expected probabilities of trade and interim expected transfers of any bayesian mechanism can also be obtained with a dominant strategy mechanism

auctions with almost homogeneous bidders abstract we prove that around the symmetric case where the values are identically distributed the equilibrium of the first price auction is jointly differentiable with respect to general bidder specific parameters of the value distributions we show that the revenue equivalence between the first price and the second price auctions to the first order in the size of the parameters is an immediate consequence of this differentiability and the revenue equivalence theorem thereby formally establishing the first order equivalence fibich et al g fibich a gavious a sela revenue equivalence in asymmetric auctions j econ theory 115 2004 309 321 noticed for their particular perturbation

informed principal with correlation in this paper we analyze a simple two sided adverse selection model with one principal and one agent they are both risk neutral and have private information about their type we also assume that the private information of the principal is correlated with the one of the agent the main result of the paper is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public the principal can design such a contract because she exploits the fact that her type is an informative signal on the agent s one we fully characterize the equilibrium of the principal agent game in which different types of principal offer the same menu of contracts that leave the agent uninformed about the principal s type this gives more freedom to the principal when setting the transfers because the agent s constraints need to hold only at an interim stage the principal gains from a peculiarity of the correlated environment different types of agent have different beliefs about the probability distribution over the states of the world

resale in second price auctions with costly participation abstract we study sealed bid second price auctions with costly participation and resale each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff if resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function the symmetric equilibrium where all bidders use the same cutoff is less efficient than a class of two cutoff asymmetric equilibria existence of these equilibria without resale is sufficient for existence of similarly constructed two cutoff equilibria with resale moreover the equilibria with resale are more asymmetric and under a sufficient condition more efficient than the corresponding equilibria without resale

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

collusion via resale the english auction is susceptible to tacit collusion when post auction interbidder resale is allowed we show this by constructing equilibria where with positive probability one bidder wins the auction without any competition and divides the spoils by optimally reselling the good to the other bidders these equilibria interim pareto dominate among bidders the standard value bidding equilibrium without requiring the bidders to make any commitment on bidding behavior or postbidding spoil division

a general characterization of interim efficient mechanisms for independent linear environments we consider the class of bayesian environments with independent types and utility functions which are both quasi linear in a private good and linear in a one dimensional private value type parameter we call these independent linear environments for these environments we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints we also prove that they correspond to decision rules based on virtual surplus maximization together with the appropriate incentive taxes we illustrate these techniques with applications to auction design and public good provision

the role of optimal threats in auction design abstract this paper studies revenue maximizing auctions when buyers outside options depend on their private information and are endogenously chosen by the seller we show that the revenue maximizing assignment of the object can depend crucially on the outside options that the seller can choose as threats depending on the shape of outside options sometimes an optimal mechanism allocates the object in an ex post efficient way and other times buyers obtain the object more often than is efficient

robustly collusion proof implementation a contract with multiple agents may be susceptible to collusion we show that agents collusion imposes no cost in a large class of circumstances with risk neutral agents including both uncorrelated and correlated types in those circumstances any payoff the principal can attain in the absence of collusion including the second best level can be attained in the presence of collusion in a way robust to many aspects of collusion behavior the collusion proof implementation generalizes to a setting in which only a subset of agents may collude provided that noncollusive agents incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism our collusion proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion

resource allocation under demand uncertainty and private information we study the effect of multilateral private information on the efficiency of markets where capacity constrained upstream agents supply a resource to downstream entities facing uncertain end demands we analyze two models a pooling system in which a single downstream principal pools a resource from multiple upstream agents and a distribution system in which one upstream principal allocates a resource across multiple downstream agents we show that the presence of multilateral private information does not hinder efficiency in the pooling system in contrast in the distribution system the quantities allocated to downstream agents can exceed as well as fall short of their first best levels these results shed light on the recently improved performance of u s agricultural produce market and the observed episodes of shortages oversupplies in flu vaccine and other seasonal markets this paper was accepted by manel baucells decision analysis