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Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case
Helmut Bester
Abstract
This paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism. We show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent. In contrast with the conventional revelation principle, however, the agent may not use this strategy with probability one. Our results apply to contracting problems between a principal and a single agent. By reducing such problems to well-defined programming problems they provide a basic tool for studying imperfect commitment.
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