<p>Hidden-Information Agency<br/>Bernard Caillaud Benjamin E. Hermalin<br/>March 2000</p><p>Contents<br/>1 Introduction 1<br/>2 The Basics of Contractual Screening 1<br/>3 The Two-Type Screening Model 2<br/>3.1 A simple two-type screening situation . . . . . . . . . . . . . . . 3<br/>3.2 Contracts under incomplete information . . . . . . . . . . . . . . 4<br/>4 General Screening Framework 11<br/>5 The Standard Framework 16<br/>5.1 The Spence-Mirrlees Assumption . . . . . . . . . . . . . . . . . . 21<br/>5.2 Characterizing the Incentive-Compatible Contracts . . . . . . . . 24<br/>5.3 Optimization in the standard framework . . . . . . . . . . . . . . 28<br/>5.4 The retailer-supplier example revisited . . . . . . . . . . . . . . . 32<br/>5.5 General conditions for solving the principal’s problem . . . . . . 34<br/>5.6 Random-allocation mechanisms . . . . . . . . . . . . . . . . . . . 38<br/>6 The Hidden-Knowledge Model 39<br/>7 Concluding Remarks 42</p><br/>