Mylovanov, Tymofiy; Tröger, Thomas
Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case.
SFB/TR 15 Discussion Paper No. 437
We show that, in environments with independent private values and
transferable utility, a privately informed principal can implement a contract that
is ex-ante optimal for her. As an application, we consider a bilateral exchange
environment (Myerson and Satterthwaite, 1983) in which the principal is one of
the traders. If the property rights over the good are dispersed among the traders,
the principal will implement a contract in which she is almost surely better off
than if there were no uncertainty about her information. The optimal contract is a
combination of a participation fee, a buyout option for the principal, and a resale
stage with posted prices and, hence, is a generalization of the posted price that would
be optimal if the principal's valuation were commonly known. We also provide a
condition under which the principal implements the same contract regardless of
whether the agents know her information or not.