News From The Informed Principal In Private-Value Environments

This paper studies the problem of mechanism selection by an informed principal in semi-private environments: the agents’s payoffs are independent of the principal’s type, but the principal’s payoff may depend on the agents’ types, and the agents’ types may be interdependent. A solution to the informed-principal problem exists under weak conditions. The essential condition is that the payoff functions are such that, given any type profile, the best outcome for the principal is the worst outcome for the agents. This best-worst-condition is satisfied in most bargaining and auction environments. In many quasi-linear environments, including standard auction environments with continuously distributed types, the privacy of the principal’s information is irrelevant: a privately informed principal proposes the same optimal auction as when her information is public. We also provide an example of a quasi-linear environment where the privately informed principal is strictly better off than when her information is public.