News from the Informed Principal in Private-Value Environments

This paper studies the problem of mechanism selection by an informed principal in semi-private environments: the agents’s payoffs and types are independent of the principal’s type, but the principal’s payoff may depend on the agents’ types, and the agents’ types may be interdependent. We show that a solution to the informed-principal problem exists under weak conditions. The essential condition is that the payoff functions are such that, given any type profile, the best outcome for the principal is the worst outcome for the agents. This best-worst-condition is satisfied in most bargaining and auction environments. We also compute examples of the solution for the informed principal problem. ∗Department of Economics, University of Bonn, Germany. Email: [email protected] and [email protected]. Financial Support by the German Science Foundation (DFG) through SFB/TR 15 “Governance and the Efficiency of Economic Systems” is gratefully acknowledged.