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Licensed Unlicensed Requires Authentication Published by De Gruyter August 6, 2003

On Non-responsiveness in Adverse Selection Models with Common Value

  • Pierre-Henri Morand and Lionel Thomas

In common value models, it is possible that the full information efficiency and the incentive constraint require the quantity of full and asymmetric information to move in opposite directions with the type. This conflict is called non-responsiveness. Most of those models share the features that when there is conflict, the optimal contract is pooling otherwise it is separating. In this note, we will show that, in fact, the robustness of the links between the conflict and separating contracts is not a general consequence of the common value models: it depends crucially on the assumption made in all those models that the principal's marginal benefit from trade with full information is not distorted by the presence of informational rents.

Published Online: 2003-8-6

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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