Optimal contracts with public ex post information (Q1099054): Difference between revisions

We are concerned with the value of public ex post information about a seller's costs (\(\theta\in \Theta)\) to an initially uninformed buyer. We derive necessary and suffcient conditions for a public ex post signal (s\(\in S)\) that is correlated with the risk-neutral seller's costs to render the initial information asymmetry inconsequential to the buyer. The First-Best outcome for the buyer is shown to be feasible if: (1) the dimension of S is at least that of \(\Theta\), or (2) the conditional likelihood function of s given \(\theta\) is, for one of its realizations, \(s_ j\), a strictly increasing function of \(\theta\) and more concave in \(\theta\) than is the seller's cost function.