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Equilibrium rejection of a mechanism

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  • Celik, Gorkem
  • Peters, Michael

Abstract

We study a mechanism design problem in which players can take part in a mechanism to coordinate their actions in a default game. By refusing to participate in the mechanism, a player can revert to playing the default game non-cooperatively. We show with an example that some allocation rules are implementable only with mechanisms which will be rejected on the equilibrium path. In our construction, a refusal to participate conveys information about the types of the players. This information causes the default game to be played under different beliefs, and more importantly under different higher order beliefs, than the interim ones. We find a lower bound on all the implementable payoffs. We use this bound to establish a condition on the default game under which all the implementable outcomes are truthfully implementable, without the need to induce rejection of the mechanism.

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Bibliographic Info

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

Volume (Year): 73 (2011)
Issue (Month): 2 ()
Pages: 375-387

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:2:p:375-387

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

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Keywords: Mechanism design; Default game; Cartel agreements;

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References

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Cited by:
  1. Jullien, Bruno & Pouyet, Jérôme & Sand-Zantman, Wilfried, 2013. "Divide and Learn: Early Contracting with Endogenous Threat," TSE Working Papers 13-415, Toulouse School of Economics (TSE).
  2. Madhav S. Aney, 2012. "Conflict with Quitting Rights: A Mechanism Design Approach," Working Papers 18-2012, Singapore Management University, School of Economics.
  3. Celik, Gorkem & Peters, Michael, 2011. "Reciprocal Relationships and Mechanism Design," Microeconomics.ca working papers gorkem_celik-2011-19, Vancouver School of Economics, revised 01 Aug 2011.

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