Subgame Perfect Implementation With Almost Perfect Information

The theory of incomplete contracts has been recently questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of this mechanism to the introduction of small amounts of asymmetric information. Our main result is that the mechanism may not yield (even approximately) truthful revelation as the amount of asymmetric information goes to zero. Aghion: Harvard University, Department of Economics. email: [email protected]. Fudenberg: Harvard University, Department of Economics. email: [email protected]. Holden: Massachusetts Institute of Technology, Sloan School of Management. E52-410, 50 Memorial Drive Cambridge MA 02142. email: [email protected]. We are grateful to Mathias Dewatripont, Bob Gibbons, Oliver Hart, Philippe Jehiel, John Moore, Roger Myerson, Andrew Postlewaite, Jean Tirole, Ivan Werning and Muhamet Yildiz for helpful discussions and comments. Michael Powell provided excellent research assistance.