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arXiv · 2501.14686

The Division of Surplus and the Burden of Proof

Deniz Kattwinkel·Justus Preusser
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Abstract

A principal and an agent divide a surplus whose size is known only to the agent. The agent decides how much to reveal initially. Both parties can acquire costly evidence to verify the surplus. The agent's liability is bounded by the revealed surplus. The principal commits to their own acquisition-effort and to transfers contingent on who provides evidence. With these instruments, the principal simultaneously motivates the agent to reveal the surplus and to acquire evidence. We characterize optimal mechanisms using a novel technique that is based on reforming existing mechanisms and orders the instruments. It applies to related multi-instrument problems.

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econ.TH

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Deniz Kattwinkel, Justus Preusser. 2025-01-24. The Division of Surplus and the Burden of Proof. https://arxiv.org/abs/2501.14686

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