|This centre is a member of The LSE Research Laboratory [RLAB]: CASE | CVER | CEP | SERC | STICERD||Cookies?|
Paper No' TE/2006/511: | Full paper
Save Reference as: BibTeX File | EndNote Import File
Keywords: Optimal Courts; Informational Externalities, Ex-ante Welfare, Informed Principal, Menu Contracts.
JEL Classification: C79; D74; D89; K40; L14
Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Theoretical Economics
Share this page: Google Bookmarks | Facebook | Twitter
Abstract:We describe and analyze a contractual environment that allows a role for an active court. The model we analyze is the same as in Anderlini, Felli, and Postlewaite (2006). An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties’ welfare under a veil of ignorance. In Anderlini, Felli, and Postlewaite (2006) the possibility of “menu contracts” between the informed buyer and the uninformed seller is described but not analyzed. Here, we fully analyze this case. We find that if we maintain the assumption that one of the potential objects of trade is not contractible ex-ante, the results of Anderlini, Felli, and Postlewaite (2006) survive intact. If however we let all “widgets” be contractible ex-ante, then multiple equilibria obtain. In this case the role for an active court is to ensure the inefficient pooling equilibria do not exist alongside the superior ones in which separation occurs.
Copyright © RLAB & LSE 2003 - 2015 | LSE, Houghton Street, London WC2A 2AE | Contact: RLAB | Site updated 02 September 2015