Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem
44 Pages Posted: 21 Jul 2009 Last revised: 12 Aug 2009
Date Written: July 2009
The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore- Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.
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