Contracting for Multiple Goods Under Asymmetric Information

14 Pages Posted: 9 Apr 2013

See all articles by Kazumi Hori

Kazumi Hori

Ritsumeikan University - College of Economics

Date Written: April 9, 2013

Abstract

Optimal contracts between a buyer and a seller who trade multiple goods under asymmetric information are considered. The seller makes sequences of unobservable investments, and then realizes the value of the goods. The investment level and value of goods are private information for the seller and the buyer respectively. In this situation, although the parties can write complete contracts, a hold-up problem exists. It is shown that each good is not traded sequentially in the second-best contract, but they are treated independently or as one bundled good. Dynamic contracts cannot solve the hold-up problem.

JEL Classification: C72, D23, D82, D86

Suggested Citation

Hori, Kazumi, Contracting for Multiple Goods Under Asymmetric Information (April 9, 2013). Available at SSRN: https://ssrn.com/abstract=2247032 or http://dx.doi.org/10.2139/ssrn.2247032

Kazumi Hori (Contact Author)

Ritsumeikan University - College of Economics ( email )

1-1-1 Noji-Higashi
Kusatsu, Shiga 525-8577, Siga 525-8577
Japan

HOME PAGE: http://www.ritsumei.ac.jp/~kazhori/