Definable and Contractible Contracts.(Report) Peters, Michael; Szentes, Balazs

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Peters, Michael ; Szentes, Balazs
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Contracts & orders received; Contracts & orders let; Contracts
To authenticate to the full-text of this article, please visit this link: Byline: Michael Peters (1), Balazs Szentes (2) Keywords: Definability; contract theory; folk theorem Abstract: This paper analyzes Bayesian normal form games in which players write contracts that condition their actions on the contracts of other players. These contracts are required to be representable in a formal language. This is accomplished by constructing contracts which are definable functions of the Godel code of every other player's contract. We provide a complete characterization of the set of allocations supportable as pure-strategy Bayesian equilibria of this contracting game. When information is complete, this characterization provides a folk theorem. In general, the set of supportable allocations is smaller than the set supportable by a centralized mechanism designer. Author Affiliation: (1)Dept. of Economics, University of British Columbia, 497-1873 East Mall, Vancouver, BC V6T 1Z1, Canada; (2)Dept. of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, United Kingdom; Article History: Manuscript received January, 2009; final revision received April, 2011.
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