Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1541
I analyze common agency games in which the principals, and possibly the agent, have private information. I distinguish between games in which the principals delegate the final decisions to the agent, and games in which they retain some decision power after offering their mechanisms. I show that, in contrast with mechanism design models with one informed principal, Myerson's Inscrutability Principle fails when there are many informed principals. I also find that, in contrast with common agency models with uninformed principals, the Delegation Principle (Menu Theorem) fails when principals are informed. I then focus on Perfect Bayesian Equilibria in which principals offer their mechanisms without randomizing. I characterize the outcomes of arbitrary games with delegation as outcomes of a new game in which principals offer menus and send cheap-talk signals. Next, I characterize the outcomes of arbitrary games without delegation as outcomes of a new game in which principals offer menus of direct revelation mechanisms, to which they truthfully report their types.
common agency informed principals Inscrutability Principle Delegation Principle menus signals direct revelation mechanisms