Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem

44 Pages Posted: 21 Jul 2009 Last revised: 12 Aug 2009

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Drew Fudenberg

Massachusetts Institute of Technology (MIT)

Richard Holden

Massachusetts Institute of Technology (MIT); National Bureau of Economic Research (NBER)

Date Written: July 2009

Abstract

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.

Suggested Citation

Aghion, Philippe and Fudenberg, Drew and Holden, Richard, Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem (July 2009). NBER Working Paper No. w15167. Available at SSRN: https://ssrn.com/abstract=1435625

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Drew Fudenberg

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Richard Holden

Massachusetts Institute of Technology (MIT) ( email )

E52-410
50 Memorial Drive
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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