Informed Principal with Correlation.
In this paper we analyze a simple two-sided adverse selection model with one principal and one agent. They are both risk neutral and have private information about their type. We also assume that the private information of the principal is correlated with the one of the agent. The main result of the paper is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public. The principal can design such a contract because she exploits...Expand abstract
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