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Mechanism design with partial state verifiability

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  • Deneckere, Raymond
  • Severinov, Sergei
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    Abstract

    We study implementation in environments where agents have limited ability to imitate others. Agents are randomly and privately endowed with type-dependent sets of messages. So sending a message becomes a partial proof regarding type. For environments where agents can send any combination of available messages, we develop an Extended Revelation Principle and characterize the incentive constraints which implementable allocations must satisfy. When not all message combinations are feasible, static mechanisms no longer suffice. If a 'punishment' allocation exists for each agent, then implementable allocations can be characterized as equilibria of a "Revelation Game," in which agents first select from the menus of allocation rules, then the mediator requests each agent to send some verifying messages. When a punishment allocation fails to exist for some agent, dynamic games in which agents gradually reveal their evidence implement a larger set of outcomes. The latter result provides a foundation for a theory of debate.

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    Bibliographic Info

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

    Volume (Year): 64 (2008)
    Issue (Month): 2 (November)
    Pages: 487-513

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    Handle: RePEc:eee:gamebe:v:64:y:2008:i:2:p:487-513

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

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    References

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    1. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
    2. Bull, Jesse & Watson, Joel, 2002. "Hard Evidence and Mechanism Design," University of California at San Diego, Economics Working Paper Series qt7715f08f, Department of Economics, UC San Diego.
    3. Alger, Ingela & Albert Ma, Ching-to, 2003. "Moral hazard, insurance, and some collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 225-247, February.
    4. Forges, Françoise & Koessler, Frédéric, 2005. "Communication equilibria with partially verifiable types," Economics Papers from University Paris Dauphine 123456789/168, Paris Dauphine University.
    5. 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.
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    7. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
    8. Glazer, Jacob & Rubinstein, Ariel, 2001. "Debates and Decisions: On a Rationale of Argumentation Rules," Games and Economic Behavior, Elsevier, vol. 36(2), pages 158-173, August.
    9. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 23-38, January.
    10. 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.
    11. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
    12. Ingela Alger & Régis Renault, 2006. "Screening Ethics When Honest Agents Care About Fairness ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 59-85, 02.
    13. Chen, Yongmin, 2000. "Promises, Trust, and Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 209-32, April.
    14. Jacob Glazer & Ariel Rubinstein, 2004. "On Optimal Rules of Persuasion," Econometrica, Econometric Society, vol. 72(6), pages 1715-1736, November.
    15. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
    16. Francesco Squintani, 2005. "Contracts, Liability Restrictions and Costly Verification," NajEcon Working Paper Reviews 172782000000000102, www.najecon.org.
    17. Keith J. Crocker & John Morgan, 1998. "Is Honesty the Best Policy? Curtailing Insurance Fraud through Optimal Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 355-375, April.
    18. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June.
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    Cited by:
    1. Ben-Porath, Elchanan & Lipman, Barton L., 2012. "Implementation with partial provability," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1689-1724.
    2. Péter Eső & Ádám Galambos, 2013. "Disagreement and evidence production in strategic information transmission," International Journal of Game Theory, Springer, vol. 42(1), pages 263-282, February.
    3. Elchanan Ben-Porath & Barton L. Lipman, 2009. "Implementation and Partial Provability," Boston University - Department of Economics - Working Papers Series wp2009-002, Boston University - Department of Economics.
    4. Jeanne Hagenbach & Frédéric Koessler & Eduardo Perez-Richet, 2012. "Certifiable Pre-Play Communication: Full Disclosure," Working Papers hal-00753473, HAL.
    5. Jeanne Hagenbach & Frédéric Koessler & Eduardo Perez-Richet, 2012. "Certifiable Pre-Play Communication: Full Disclosure," PSE Working Papers hal-00753473, HAL.

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