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Credible implementation

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  • Chakravorty, Bhaskar
  • Corchon, Luis C.
  • Wilkie, Simon

Abstract

The theory of mechanism design and implementation abounds with clever mechanisms whose equilibrium outcomes are optimal according to some social choice rule. However, the cleverness of these mechanisms relies on intricate systems of rewards and punishments off-the-equilibrium path. Generally, it is not in the designer's best interest to go through with the reward/punishment in the "subgame" arising from some disequilibrium play. This would make the mechanism's outcome function non-credible. In the context of exchange economies, we define an appropiate notion of "credible" implementation and show that (a) the non-dictatorial Pareto correspondence can be crediblyimplemented (b) there exists no credibly implementable Pareto-efficient and individually rational social choice rule and (c) there exists no credibly implementable fair social choice rules. We derive necessary and sufficient conditions for credible implementability of choice rules. The main implication is paradoxical: it is suboptimal for the designer to be endowed with "too much" information about the economy. Finally, we show that the negative results persist even under weaker credibility requirements .

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 57 (2006)
Issue (Month): 1 (October)
Pages: 18-36

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Handle: RePEc:eee:gamebe:v:57:y:2006:i:1:p:18-36

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Web page: http://www.elsevier.com/locate/inca/622836

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References

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Cited by:
  1. Amoros, Pablo, 2004. "Nash implementation and uncertain renegotiation," Games and Economic Behavior, Elsevier, vol. 49(2), pages 424-434, November.
  2. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer, vol. 18(4), pages 655-708.
  3. Luis C. Corchon, 2007. "The theory of implementation : what did we learn?," Economics Working Papers we081207, Universidad Carlos III, Departamento de Economía.
  4. John Conley & Simon Wilkie, 1994. "Implementing the nash extension bargaining solution for non-convex problems," Review of Economic Design, Springer, vol. 1(1), pages 205-216, December.
  5. Matthew O. Jackson & Thomas R. Palfrey, 1998. "Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining," Econometrica, Econometric Society, vol. 66(6), pages 1353-1388, November.

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