Abstract

http://ssrn.com/abstract=2291937
 
 

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Optimal Stopping with Private Information


Thomas Kruse


Université d'Évry - Departement de Mathematiques

Philipp Strack


Microsoft Corporation - Microsoft Research New England

May 6, 2014


Abstract:     
Many economic situations are modeled as stopping problems. Examples include job search, timing of market entry decisions, irreversible investment or the pricing of American options. This paper analyzes optimal stopping as a mechanism design problem with transfers. We show that a under a dynamic single crossing condition a stopping rule can be implemented by a transfer that only depends on the realized stopping decision if and only if it is a cut-off rule. We characterize the transfer implementing a given stopping rule using a novel technique based on constrained stochastic processes.

As an application we prove that in any Markovian optimal stopping problem there exists a welfare maximizing mechanism that does not require any communication. We discuss revenue maximization for separable processes.

Number of Pages in PDF File: 34

Keywords: Dynamic Mechanism Design, Optimal Stopping, Dynamic Implementability, Posted-Price Mechanism

JEL Classification: D82, C62

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Date posted: July 10, 2013 ; Last revised: May 8, 2014

Suggested Citation

Kruse, Thomas and Strack, Philipp, Optimal Stopping with Private Information (May 6, 2014). Available at SSRN: http://ssrn.com/abstract=2291937 or http://dx.doi.org/10.2139/ssrn.2291937

Contact Information

Thomas Kruse
Université d'Évry - Departement de Mathematiques ( email )
Rue du Pere Jarlan
Evry, 91025
France
Philipp Strack (Contact Author)
Microsoft Corporation - Microsoft Research New England ( email )
One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States
HOME PAGE: http://www.philippstrack.com
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