Ex ante contracting with endogenously determined communication plans (Q5953039)

The purpose of this paper is to introduce a new model of ex ante contracting for economies with asymmetric information, and to study communication plans that are endogenously determined for information sharing in the interim stage. In the proposed model the agents negotiate not only a contract of state contingent allocations, but also on a communication plan, i.e., a set of rules describing how agents will reveal part of their private information at the interim stage to execute the trade contracts. The author shows that the set of allocations implementable with a given communication plan are restricted by appropriate measurability conditions. The presence of asymmetric information further restricts the communication plan-allocation pairs to satisfy certain individual Bayesian incentive compatibility conditions in order to ensure truthful execution of the information revealing process. Under such assumptions, the set of allocations implementable by various communication plans is proved to have a nested structure, viz. if the core is non-empty, then there exists always an element of the core that is associated with the full information revealing communication plan. The existence of core strategies for this cooperative game model is demonstrated. These results are extended to coalitional production economies, and there is discussed an example of such an economy where affine linear utility functions are commonly adopted.