This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations...

A finite number of sellers (n) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately...

We consider a principal-agent model with moral hazard where the agent's knowledge about the performance measure is ambiguous and he is averse towards ambiguity. We show that the principal may optimally provide no incentives or contract only on a subset of all informative performance measures....

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

Should principals explain and justify their evaluations? In this paper the principal's evaluation is private information, but she can provide justification by sending a costly cheap-talk message. I show that the principal explains her evaluation to the agent if the evaluation turns out to be...

McAfee and Reny (1992) have given a necessary and sufficient condition for full surplus extraction in models with a continuum of types. We interpret their condition as significantly stronger version of the requirement of injectiveness of the function mapping abstract types into beliefs and prove...

Before embarking on a project, a principal must often rely on an agent to learn about its profitability. We model this learning as a two-armed bandit problem and highlight the interaction between learning (experimentation) and production. We derive the optimal contract for both experimentation...

We analyze strategic leaks due to spying out a rival’s bid in a first-price auction. Such leaks induce sequential bidding, complicated by the fact that the spy may be a counterspy who serves the interests of the spied at bidder and reports strategically distorted information. This ambiguity...

We study a symmetric private value auction with signaling, in which the auction outcome is used by an outside observer to infer the bidders’ types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in the second-price auction and the English auction....

McAfee and Reny (1992) have given a necessary and sufficient condition for full surplus extraction in naive type spaces with a continuum of payoff types. We generalize their characterization to arbitrary abstract type spaces and to the universal type space and show that in each setting, full...