Theoretical Economics, Volume 14, Number 3 ( 2019)

Theoretical Economics 14 (2019), 971–1014

Renegotiation proof mechanism design with imperfect type verification

Francisco Silva


I consider the interaction between an agent and a principal who is unable to commit not to renegotiate. The agent's type only affects the principal's utility. The principal has access to a public signal, correlated with the agent's type, which can be used to (imperfectly) verify the agent's report. I define renegotiation proof mechanisms and characterize the optimal one. The main finding of this paper is that the optimal renegotiation proof mechanism induces pooling at the top, i.e., types above a certain threshold report to be the largest type, while types below the threshold report truthfully.

Keywords: Renegotiation proof, mechanism design, verification

JEL classification: D8

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