Supermodular mechanism design
AbstractThis paper introduces a mechanism design approach that allows dealing with the multiple equilibrium problem, using mechanisms that are robust to bounded rationality. This approach is a tool for constructing supermodular mechanisms, i.e. mechanisms that induce games with strategic complementarities. In quasilinear environments, I prove that if a social choice function can be implemented by a mechanism that generates bounded strategic substitutes - as opposed to strategic complementarities - then this mechanism can be converted into a supermodular mechanism that implements the social choice function. If the social choice function also satisfies some efficiency criterion, then it admits a supermodular mechanism that balances the budget. Building on these results, I address the multiple equilibrium problem. I provide sufficient conditions for a social choice function to be implementable with a supermodular mechanism whose equilibria are contained in the smallest interval among all supermodular mechanisms. This is followed by conditions for supermodular implementability in unique equilibrium. Finally, I provide a revelation principle for supermodular implementation in environments with general preferences.
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Bibliographic InfoArticle provided by Econometric Society in its journal Theoretical Economics.
Volume (Year): 5 (2010)
Issue (Month): 3 (September)
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Web page: http://econtheory.org
Implementation; mechanisms; learning; strategic complementarities; supermodular games;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Felix Bierbrauer & Nick Netzer, 2012.
"Mechanism Design and Intentions,"
Working Paper Series in Economics
53, University of Cologne, Department of Economics, revised 21 Aug 2012.
- Healy, Paul J. & Mathevet, Laurent, 2012. "Designing stable mechanisms for economic environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
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