Optimal equilibrium contracts in the infinite horizon with no commitment across periods
THEORY AND DECISION(2022)
摘要
The paper studies equilibrium contracts under adverse selection when there is repeated interaction between a principal and an agent over an infinite horizon, without commitment across periods. We show the second-best contract is offered in a perfect Bayesian equilibrium of the infinite horizon model. Unlike the equilibrium contracts in the finite-horizon, the equilibrium contracts in the infinite horizon are not subject to either the ratchet effect or take-the-money-and-run strategy , but rely on a carrot and stick strategy. We study two important applications, one of which is about the optimal regulation of a publicly-held firm. This application has a mixture of both moral hazard and adverse selection. The other application is to the problem of optimal nonlinear pricing when the valuation of the buyers are drawn from a continuum.
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关键词
Adverse selection,Games with incomplete information,Optimal contracts with commitment,Pooling contracts,Separating contracts,Perfect Bayesian equilibrium,Optimal contracts with no commitment
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