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Dynamic Contracting under Permanent and Transitory Private Information

Ungureanu, S. (2016). Dynamic Contracting under Permanent and Transitory Private Information. International Journal of Game Theory, doi: 10.1007/s00182-016-0552-8

Abstract

To understand how firms create and maintain long term relationships with consumers, or how procurement relations evolve over time, this paper examines a dynamic variant of the classical two-type-buyer contract with commitment in mechanism design. The utility determinant (or utility type) is not fixed nor completely random, and fair assumptions are that it evolves stochastically, or it is given by a distribution whose parameters are common knowledge. The second approach is pursued in this paper, and the distribution of the utility type is determined by a private information buyer type. With two possible types of buyers, the buyer more likely to have a high utility type will receive the first-best allocations, while the other will receive the first best only if he has the high utility type.

Publication Type: Article
Additional Information: The final publication is available at Springer: http://link.springer.com/article/10.1007/s00182-016-0552-8
Publisher Keywords: asymmetric information, dynamic contracting, mechanism design, information structure
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
URI: http://openaccess.city.ac.uk/id/eprint/11860
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