Subgame Perfect Implementation With Almost Perfect Information And The Hold-Up Problem

The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). The authors consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. They show that Moore-Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, they argue that a wide class of extensive-form mechanisms is subject to this fragility.