(although, again, the techniques and insights developed here have wider applicability). As
in that earlier section, the contract offer is made on a take-it-or-leave-it (TIOLI) basis.
As before, call the informed party’s information her type. Denote it by γ and assume
it is an element of
Ŵ
. Let
G:Ŵ→[0,1]
be the distribution function by which “Nature”
chooses γ. While γ is the informed party’s (here, seller’s) private information,
Ŵ
and G(·)
are common knowledge.
6.4.1 The Lemons Model
The classic informed-seller model is Akerlof’s (1970) “lemons model”: the seller’s type
(i.e., γ) describes the quality of the good or ...
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