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Hard evidence and mechanism design

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  • Bull, Jesse
  • Watson, Joel

Abstract

In its standard “public choice” form, the mechanism-design framework abstracts from institutional and technological constraints beyond those that the modeler can represent in the definition of states, outcomes, and preferences. This abstraction can create a useful simplification. However, there are real constraints that we are interested in studying but that cannot be incorporated into the standard framework. For example, in many settings, parties can present hard evidence. The key features of hard evidence are that (a) whether to present evidence is an inalienable decision, and (b) the existence of evidence depends on the state. We show how hard evidence can be incorporated into the mechanism-design framework. This is particularly interesting in two player settings, which much of the recent contract theory literature has focused on, because, in general, more outcome functions can be implemented than can be with standard Nash implementation. A key objective is to address the meaning and validity of the revelation principle in the context of hard evidence. We address the degree to which the parties' behavior in a mechanism can be interpreted as abstract “declarations of the state.” We provide a link between real evidence and abstract declarations, which clarifies when the abstract-declaration environment, which was first studied in Green and Laffont's (1986) “limited verifiability” analysis, has an intuitive interpretation. We find that the condition of evidentiary normality---under which, for each party, there is a one-to-one mapping between states and report/evidence pairs that holds across all implementation exercises---justifies studying the abstract-declaration model. However, without evidentiary normality, it is not appropriate to focus on static mechanisms. We show that, regardless of whether evidentiary normality holds, any implementable outcome function can be implemented with a two-stage dynamic mechanism, in which players simultaneously send m

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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

Volume (Year): 58 (2007)
Issue (Month): 1 (January)
Pages: 75-93

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Handle: RePEc:eee:gamebe:v:58:y:2007:i:1:p:75-93

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

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References

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  1. Jesse Bull, 2006. "Costly Evidence Production and the Limits of Verifiability," Working Papers 0611, Florida International University, Department of Economics.
  2. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  3. Lipman Barton L. & Seppi Duane J., 1995. "Robust Inference in Communication Games with Partial Provability," Journal of Economic Theory, Elsevier, vol. 66(2), pages 370-405, August.
  4. Deneckere,R. & Severinov,S., 2001. "Mechanism design and communication costs," Working papers 23, Wisconsin Madison - Social Systems.
  5. Green, Jerry R & Laffont, Jean-Jacques, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 447-56, July.
  6. Bull, Jesse & Watson, Joel, 2002. "Evidence Disclosure and Verfiability," University of California at San Diego, Economics Working Paper Series qt19p7z2gm, Department of Economics, UC San Diego.
  7. Robert Evans, 2008. "Simple Efficient Contracts in Complex Environments," Econometrica, Econometric Society, vol. 76(3), pages 459-491, 05.
  8. Forges, Françoise & Koessler, Frédéric, 2005. "Communication equilibria with partially verifiable types," Economics Papers from University Paris Dauphine 123456789/168, Paris Dauphine University.
  9. Dasgupta, Partha S & Hammond, Peter J & Maskin, Eric S, 1979. "The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 185-216, April.
  10. Daniel J. Seidmann & Eyal Winter, 1997. "Strategic Information Transmission with Verifiable Messages," Econometrica, Econometric Society, vol. 65(1), pages 163-170, January.
  11. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
  12. Maskin, Eric & Moore, John, 1999. "Implementation and Renegotiation," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 39-56, January.
  13. Sandro Brusco, 2002. "Unique Implementation of Action Profiles: Necessary and Sufficient Conditions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 509-532, May.
  14. Mookherjee, Dilip & Reichelstein, Stefan, 1990. "Implementation via Augmented Revelation Mechanisms," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 453-75, July.
  15. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  16. Jacob Glazer & Ariel Rubinstein, 2004. "On Optimal Rules of Persuasion," Econometrica, Econometric Society, vol. 72(6), pages 1715-1736, November.
  17. Jesse Bull, 2009. "Costly Evidence And Systems Of Fact-Finding," Bulletin of Economic Research, Wiley Blackwell, vol. 61(2), pages 103-125, 04.
  18. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
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