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Detecting profitable deviations

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  • Rahman, David M.

Abstract

Rochet’s Theorem characterizes implementable allocations in a mechanism design environment in terms of cyclic monotonicity, a concept from convex analysis. In this paper, I offer an alternative approach to both the proof and interpretation of this result, based on linear duality. This duality reveals a formal relationship between incentives and detection, much like that between prices and quantities. Moreover, it allows me to extend Rochet’s Theorem and present a subdifferential characterization of implementing payments, revenue equivalence as differentiability of a value function, as well as budget-balanced implementation in terms of attributing innocence after unilateral deviations, together with other ancillary results.

Suggested Citation

  • Rahman, David M., 2024. "Detecting profitable deviations," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:mateco:v:111:y:2024:i:c:s0304406824000089
    DOI: 10.1016/j.jmateco.2024.102946
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