Theoretical Economics 5 (2010), 159–213
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Common agency and public good provision under asymmetric information
David Martimort, Humberto Moreira
Abstract
The provision of public goods under asymmetric information has most often
been viewed as a mechanism design problem under the aegis of an uninformed
mediator. This paper focuses on institutional contexts without such
mediator. Contributors privately informed on their willingness to pay
non-cooperatively offer contribution schedules to an agent who produces the
public good on their behalf. In any separating and informative equilibrium
of this common agency game under asymmetric information, instead of reducing
marginal contributions to free-ride on others, principals do so to screen
the agent's endogenous private information obtained from privately observing
other principals' offers. Under weak conditions, existence of a
differentiable equilibrium is shown. Equilibria are always ex post
inefficient and interim efficient if and only if the type distribution has a
linear hazard rate. This points at the major inefficiency of contribution
games under asymmetric information and stands in sharp contrast with the
more positive efficiency result that the common agency literature has
unveiled when assuming complete information. Extensions of the model address
direct contracting between principals, the existence of pooling
uninformative equilibria and the robustness of our findings to the
possibility that principals entertain more complex communication with their
agent.
Keywords: Common agency, asymmetric information, public goods, ex post and interim efficiency
JEL classification: D82, D86, H41
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