Template-Type: ReDIF-Paper 1.0
Title: Neo-Optimum: A Unifying Solution to the Informed-Principal Problem
Author-Name: Tymofiy Mylovanov
Author-Email: mylovanov@gmail.com
Author-Name: Thomas Tröger
Author-Email: troeger@uni-mannheim.de
Classification-JEL: D47, D82
Keywords: mechanism-design, informed-principal, neologism

Abstract: A mechanism proposal by a privately informed principal is a signal. The agents' belief updating endogenizes their incentives in the mechanism, implying that such design problems
cannot be solved via optimizing subject to incentive constraints. We propose a solution, neo-optimum, that can be interpreted as principal-preferred perfect-Bayesian equilibrium. Its
neologism-based definition allows an intuitive computation, as we demonstrate in several applications. Neo-optimum connects the two main established approaches to the problem, by
Myerson and by Maskin-Tirole. Any Myerson neutral optimum is a neo-optimum, implying that a neo-optimum generally exists. In private-values environments, neo-optimum is
equivalent to strong unconstrained Pareto optimum (Maskin-Tirole) and strong neologism-proofness (Mylovanov-Tröger). In information-design settings, any interim-optimum (Koessler-Skreta) is a neo-optimum. Our methods can be used to reconstruct the perfect-Bayesian equilibria in the informed-principal literature.


Note: 
Length: 62
Creation-Date: 2025-02
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp643
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_643