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http://ssrn.com/abstract=1161006
 
 

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Active Courts and Menu Contracts


Luca Anderlini


Georgetown University - Department of Economics

Leonardo Felli


London School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Andrew Postlewaite


University of Pennsylvania - Department of Economics

October 2006

LSE STICERD Research Paper No. TE511

Abstract:     
We describe and analyze a contractual environment that allows a role for an active court. The model we analyze is the same as in Anderlini, Felli, and Postlewaite (2006). An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties' welfare under a veil of ignorance. In Anderlini, Felli, and Postlewaite (2006) the possibility of "menu contracts" between the informed buyer and the uninformed seller is described but not analyzed. Here, we fully analyze this case. We find that if we maintain the assumption that one of the potential objects of trade is not contractible ex-ante, the results of Anderlini, Felli, and Postlewaite (2006) survive intact. If however we let all "widgets" be contractible ex-ante, then multiple equilibria obtain. In this case the role for an active court is to ensure the inefficient pooling equilibria do not exist alongside the superior ones in which separation occurs.

Number of Pages in PDF File: 26

JEL Classification: C79, D74, D89, K40, L14

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Date posted: July 16, 2008  

Suggested Citation

Anderlini, Luca and Felli, Leonardo and Postlewaite, Andrew, Active Courts and Menu Contracts (October 2006). LSE STICERD Research Paper No. TE511. Available at SSRN: http://ssrn.com/abstract=1161006

Contact Information

Luca Anderlini (Contact Author)
Georgetown University - Department of Economics ( email )
Washington, DC 20057
United States
202-687-6361 (Phone)
202-687-6102 (Fax)
HOME PAGE: http://www.georgetown.edu/faculty/la2/
Leonardo Felli
London School of Economics - Department of Economics ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7525 (Phone)
+44 20 7831 1840 (Fax)
HOME PAGE: http://econ.lse.ac.uk/staff/lfelli/index_own.html
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Andrew Postlewaite
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-7350 (Phone)
215-573-2057 (Fax)
HOME PAGE: http://www.econ.upenn.edu/~apostlew
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References:  9
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