Advanced Search
MyIDEAS: Login to save this article or follow this journal

Subgame-Perfect Implementation Under Information Perturbations

Contents:

Author Info

  • Philippe Aghion
  • Drew Fudenberg
  • Richard Holden
  • Takashi Kunimoto
  • Olivier Tercieux

Abstract

We consider the robustness of extensive form mechanisms to deviations from common knowledge about the state of nature, which we refer to as information perturbations. First, we show that even under arbitrarily small information perturbations the Moore-Repullo mechanism does not yield (even approximately) truthful revelation and that in addition the mechanism has sequential equilibria with undesirable outcomes. More generally, we prove that any extensive form mechanism is fragile in the sense that if a non-Maskin monotonic social objective can be implemented with this mechanism, then there are arbitrarily small information perturbations under which an undesirable sequential equilibrium also exists. Finally, we argue that outside options can help improve efficiency in asymmetric information environments, and that these options can be thought of as reflecting ownership of an asset. JEL Codes: C72, D23, D78, D82 Copyright 2012, Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/qje/qjs026
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 127 (2012)
Issue (Month): 4 ()
Pages: 1843-1881

as in new window
Handle: RePEc:oup:qjecon:v:127:y:2012:i:4:p:1843-1881

Contact details of provider:

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jackson, Matthew O., 1999. "A Crash Course in Implementation Theory," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 1076, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Cho, In-Koo, 1987. "A Refinement of Sequential Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 55(6), pages 1367-89, November.
  3. Holden, Richard T. & Fudenberg, Drew & Aghion, Philippe, 2009. "Subgame Perfect Implementation with Almost Perfect Information and the Hold-Up Problem," Scholarly Articles 3708929, Harvard University Department of Economics.
  4. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 23-38, January.
  5. Levine, David & Kreps, David & Fudenberg, Drew, 1988. "On the Robustness of Equilibrium Refinements," Scholarly Articles 3350444, Harvard University Department of Economics.
  6. Myerson, Roger B, 1984. "Two-Person Bargaining Problems with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 461-87, March.
  7. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, Elsevier, vol. 45(1), pages 128-144, June.
  8. Saijo, Tatsuyoshi, 1988. "Strategy Space Reduction in Maskin's Theorem: Sufficient Conditions for Nash Implementation," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 693-700, May.
  9. Bester, Helmut & Krähmer, Daniel, 2008. "Exit options in incomplete contracts with asymmetric information," Discussion Papers, Free University Berlin, School of Business & Economics 2008/23, Free University Berlin, School of Business & Economics.
  10. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(2), pages 236-260, April.
  11. Muller, Eitan & Satterthwaite, Mark A., 1977. "The equivalence of strong positive association and strategy-proofness," Journal of Economic Theory, Elsevier, Elsevier, vol. 14(2), pages 412-418, April.
  12. Navin Kartik & Olivier Tercieux, 2009. "Implementation with Evidence: Complete Information," Economics Working Papers, Institute for Advanced Study, School of Social Science 0087, Institute for Advanced Study, School of Social Science, revised May 2009.
  13. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 70, C.E.P.R. Discussion Papers.
  14. Damme, E.E.C. van & Hurkens, J.P.M., 1994. "Games with imperfectly observable commitment," Discussion Paper, Tilburg University, Center for Economic Research 1994-64, Tilburg University, Center for Economic Research.
  15. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
  16. Roberto Serrano & Antonio Cabrales, 2007. "Implementation in Adaptive Better-Response Dynamics," Working Papers, Brown University, Department of Economics 2007-10, Brown University, Department of Economics.
  17. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 863-94, July.
  18. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 993-1008, September.
  19. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  20. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(2), pages 170-190, June.
  21. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 257-82, March.
  22. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, Econometric Society, vol. 58(5), pages 1083-99, September.
  23. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 59(4), pages 997-1021, July.
  24. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061414, December.
  25. Hendon, Ebbe & Jacobsen, Hans Jorgen & Sloth, Birgitte, 1996. "The One-Shot-Deviation Principle for Sequential Rationality," Games and Economic Behavior, Elsevier, Elsevier, vol. 12(2), pages 274-282, February.
  26. Johnson, Scott & Pratt, John W & Zeckhauser, Richard J, 1990. "Efficiency Despite Mutually Payoff-Relevant Private Information: The Finite Case," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 873-900, July.
  27. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers, Wisconsin Madison - Social Systems 9714, Wisconsin Madison - Social Systems.
  28. Kim-Sau Chung & Jeffrey C. Ely, 2001. "Implementation with Near-Complete Information," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1332, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  29. 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, Wiley Blackwell, vol. 46(2), pages 185-216, April.
  30. Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," MPRA Paper 12531, University Library of Munich, Germany.
  31. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 139-49, January.
  32. Marion Oury & Olivier Tercieux, 2012. "Continuous Implementation," Econometrica, Econometric Society, Econometric Society, vol. 80(4), pages 1605-1637, 07.
  33. Abreu, Dilip & Matsushima, Hitoshi, 1992. "A Response [Virtual Implementation in Iteratively Undominated Strategies I: Complete Information]," Econometrica, Econometric Society, Econometric Society, vol. 60(6), pages 1439-42, November.
  34. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1247-57, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Goldlücke, Susanne & Schmitz, Patrick W., 2014. "Investments as signals of outside options," Journal of Economic Theory, Elsevier, Elsevier, vol. 150(C), pages 683-708.
  2. Bester, Helmut & Krähmer, Daniel, 2008. "Exit Options in Incomplete Contracts with Asymmetric Information," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 251, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Oliver Hart, 2013. "Noncontractible Investments and Reference Points," Games, MDPI, Open Access Journal, MDPI, Open Access Journal, vol. 4(3), pages 437-456, August.
  4. Geoffroy de Clippel & Rene Saran & Roberto Serrano, 2014. "Mechanism Design with Bounded Depth of Reasoning and Small Modeling Mistakes," Working Papers, Brown University, Department of Economics 2014-7, Brown University, Department of Economics.
  5. Matthias Lang, 2012. "Communicating Subjective Evaluations," Working Paper Series of the Max Planck Institute for Research on Collective Goods, Max Planck Institute for Research on Collective Goods 2012_14, Max Planck Institute for Research on Collective Goods, revised Mar 2014.
  6. Kartik, Navin & Tercieux, Olivier & Holden, Richard, 2014. "Simple mechanisms and preferences for honesty," Games and Economic Behavior, Elsevier, Elsevier, vol. 83(C), pages 284-290.
  7. Kyungmin Kim & Antonio Penta, 2012. "A Robustly Efficient Auction," Carlo Alberto Notebooks, Collegio Carlo Alberto 248, Collegio Carlo Alberto.
  8. Berde, Éva, 2013. "A fundamentális transzformáció és a referenciapont szerepe a hiányos szerződések elméletében
    [The role of basic transformation and reference point in the theory of incomplete contracts]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 865-885.
  9. Thomas F. Hellmann & Veikko Thiele, 2012. "A Theory of the Firm based on Partner Displacement," NBER Working Papers 18495, National Bureau of Economic Research, Inc.
  10. Philippe Aghion & Richard Holden, 2011. "Incomplete Contracts and the Theory of the Firm: What Have We Learned over the Past 25 Years?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 25(2), pages 181-97, Spring.
  11. Ohlendorf, Susanne & Schmitz, Patrick, 2009. "Signaling an Outside Option," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 281, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:127:y:2012:i:4:p:1843-1881. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.