Implementation of optimal contracts under adverse selection

Resumen

This paper studies the principal-multiagent model of a firm subject to adverse selection. We focus on agents who have complete information. We propose some desirable properties to be satisfied by mechanisms implementing the first-best in Nash equilibrium: (i) enforceability (a property related with the individual rationality of the mechanism), (ii) renegotiation-proofness, (iii) small strategy spaces, (iv) unique implementation, (v) unique best-reply and (vi) no mixed strategies. We prove that enforceability is not compatible with renegotiation-proofness or the unique best-reply property. Then we propose two mechanisms. The first one satisfies properties (i), (ii) and (iv). The second mechanism verifies all properties but enforceability.