An extensive form solution to the adverse selection problem in principal / multi - agent environments *

When agents have quasi-linear preferences, every incentive compati-ble social choice function can be implemented by a simple extensive form mech-anism, even if agents are allowed to use mixed strategies. The second stage of themechanism, which is used to elicit the agents' true preferences, is not reached inequilibrium; it gives agents strict dominant strategies, so equilibrium outcomesare not sensitive to agents' beliefs off the equilibrium path. This solves the mul-tiple equilibrium problem of a principal facing several agents: the mechanismimplements any solution to the principal's second best maximization problem.The specification of incentive compatibility constraints in the principal's prob-lem presupposes a precise knowledge of the agents' beliefs. However, the abovemechanism can be modified to implement the principal's second best (to withinarbitrarily small perturbations of transfers), regardless of the agents' conditionalbeliefs. JEL classification: D78, D82