Sequential communication with ex post participation constraints

Abstract

The paper examines the implementation of Bayesian allocation rules that satisfy non-negative ex post payoffs for one player in a two-players bilateral asymmetric information setting. It focuses on sequential mechanisms in which players communicate in turn among themselves. First, it shows that, under general conditions, any such allocation rule can be equivalently implemented by a sequential mechanism. Second, when allocation rules are negotiated ex ante, the order matters. The player who communicates first must have bargaining power of unbouded ex post payoffs. Classification-JEL: D23; D82IMPLEMENTATION; ASYMMETRIC INFORMATION; CONTRACT; PRINCIPAL AGENT