NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem

Philippe Aghion, Drew Fudenberg, Richard T. Holden

NBER Working Paper No. 15167
Issued in July 2009
NBER Program(s):   EFG

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore- Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.

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Document Object Identifier (DOI): 10.3386/w15167

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