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T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 2, Number 1 (March 2007) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/9578

Title: Contracts and uncertainty
Authors: Wojciech Olszewski; Northwestern University
Alvaro Sandroni; University of Pennsylvania and Northwestern University
Keywords: Contracts, uncertainty, experts, minmax theorems
C44, C73, D81, D83, D86
Issue Date: 1-Mar-2007
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 2, No 1 (2007); 1-13
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] A decision maker, named Alice, wants to know if an expert has significant information about payoff-relevant probabilities of future events. The expert, named Bob, either knows this probability almost perfectly or knows nothing about it. Hence, both Alice and the uninformed expert face uncertainty: they do not know the payoff-relevant probability. Alice offers a contract to Bob. If he accepts this contract then he must announce the probability distribution before any data are observed. Once the data unfold, transfers between Alice and Bob occur. It is demonstrated that if the informed expert accepts some contract then the uninformed expert also accepts this contract. Hence, Alice's adverse selection problem cannot be mitigated by screening contracts that separate informed from uninformed experts. This result stands in contrast with the analysis of contracts under risk, where separation is often feasible.
URI: http://hdl.handle.net/1807/9578
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20070001
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 2, Number 1 (March 2007)

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