We study the contractual design problem of a seller that observes an ex-post signal correlated with the buyer’s valuation and can make the allocation, but not payments, contingent on it. We show that, to maximize her profit, the seller should offer a menu of contracts whereby the good is transferred to the buyer only if the signal is sufficiently low. The welfare implications of these contracts are also discussed.
Optimal contracts with contingent allocation
Galavotti, Stefano
;
2020-01-01
Abstract
We study the contractual design problem of a seller that observes an ex-post signal correlated with the buyer’s valuation and can make the allocation, but not payments, contingent on it. We show that, to maximize her profit, the seller should offer a menu of contracts whereby the good is transferred to the buyer only if the signal is sufficiently low. The welfare implications of these contracts are also discussed.File in questo prodotto:
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