Neutral Optima in Informed Principal Problems with Common Values

Paper number: 09/02

Paper date: June 17, 2009

Year: 2009

Paper Category: Working Paper

Authors

Dieter Balkenborg and Miltiadis Makris

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).

Neutral Optima in Informed Principal Problems with Common Values Neutral Optima in Informed Principal Problems with Common Values