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Uncertainty, Asymmetric Information and Bilateral Contracts

Michael H. Riordan^1,2

¹ California University of Pennsylvania · ² University of Pennsylvania

The paper considers a bilateral monopoly with uncertainty and asymmetric information, and characterizes necessary and sufficient conditions for the existence of contracts that are efficient and incentive compatible. These contracts can be implemented by a truthful sequential revelation mechanism. Alternatively, they can be interpreted as specifying a class of payment schedules, designating the seller to choose a schedule from this class, and the buyer to pick a point on the chosen schedule. Requirements contracting is similar.

DOI

10.2307/2297706

Volume

51 (1)

Pages

83

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