Unit-Contingent Truth-Telling Contracts Sample Clauses

Unit-Contingent Truth-Telling Contracts. We first analyze the unit-contingent contracts that enforce truth-telling. From the analysis in §3.1, we see that truth-telling is the equilibrium outcome when the penalty for misreporting is infinite in theory, but as shown in Figure 2, the truth-telling probability approaches to one quickly and the distributor’s expected utility converges quickly when the penalty increases. Thus, a reasonably large penalty is sufficient to deter misreporting. For analytical tractability, we approximate the distributor’s expected utility under a large penalty by its expected utility under infinite penalty. U When penalty φ(p) = ∞, ∀p, the equilibrium truth-telling probabilities x∗ = x∗
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