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Contracting with Imperfect Commitment and Noisy Communication

Author

Listed:
  • Helmut Bester
  • Roland Strausz
Abstract
This paper provides new analytical tools for studying principal{agent problems with adverse selection and limited commitment. By allowing the principal to use general communication devices we overcome the literature's common, but overly restrictive focus on one{shot, direct communication. In addition, general communication devices solve two fundamental probems of contracting with imperfect commitment: First, they allow us to identify the `local downward' incentive constraints as the relevant ones if the agent's preferences satisfy a single{crossing property. Second, we show how one may restrict the cardinality of the message spaces of the communi- cation device. An example illustrates our arguments and the suboptimality of one-shot, direct communication.

Suggested Citation

  • Helmut Bester & Roland Strausz, "undated". "Contracting with Imperfect Commitment and Noisy Communication," Papers 017, Departmental Working Papers.
    • Handle: RePEc:bef:lsbest:017
    as

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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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