Informed principal with correlation

Abstract

In this paper we analyze an adverse selection model with one principal and one agent, who are both risk neutral and have private information. We assume that the private information of the principal is correlated with that 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 game in which different types of principal offer the same menu of contracts that leaves 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.

On the informed seller problem: optimal information disclosure

“…Each of these alternatives has very di¤erent implications for what buyers know when they are about to participate in the auction, which, in turn, may lead to big di¤erences in achievable revenue. For example, when information disclosure is private, then, a buyer's beliefs about another buyer become part of his type since they depend on the information that is not publicly available, and buyers'types 7 can become correlated, even though buyers'initial information was statistically independent. Can the seller create correlations that allow her to reduce the buyers' information rents?…”

“…The results and the method of analysis, can be incorporated in larger games where the information released is endogenous, and it depends on what buyers anticipate that the seller will do in the future with the information they release. 7 "Types" then consist of valuations plus beliefs.…”

Limit of the Principal’s Information

“…1 This result is in sharp contrast with existing researches. In the literature on informed principals (Maskin and Tirole [2], [3], Mylovanovand Tröger [4], Cella [5] and Skreta [6]), the principal also has her own private information, but learns it ex ante, while intermediate in our model. Of these studies, [5] and [6], are close to this research, considered when the principal's and the agent's types are correlated.…”

An undominated mechanism for a class of informed principal problems with common values

“…when the principal's private information does not directly a¤ect the agent's utility, it is typically possible to …nd, at least when utilities are quasi-linear, mechanisms that (a) are e¢ cient among the di¤erent types of the principal when the agent's beliefs coincide with her priors, and (b) give the agent an expected payo¤ at least as high as his outside option, even if the agent knew the type of the principal,. For the case of private values we refer to Maskin and Tirole (1990), and the recent works of Cella (2008) and Mylovanov and Tröger (2012) together with the literature they cite. 2 A common values environment has also been studied in Maskin and Tirole (1992) and Severinov (2009).…”