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The Full Surplus Extraction Theorem with Hidden Actions

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  • Ichiro Obara

Abstract

Consider a situation in which a principal commits to a mechanism first and then agents choose unobservable actions before their payoff-relevant types are realized. The agents' actions may affect not only their payoffs directly but also the distribution of their types as well. This paper extends Crémer and McLean's full surplus extraction theorem to such a setting. In this environment, it is shown that a principal may not succeed in extracting full surplus from agents when there are many actions to which the agents can deviate.However, it is also shown that a principal can extract full surplus generically given any approximately efficient (completely) mixed action profile. This is achieved by using a general mechanism where agents announce both their types and their realized actions. Therefore, with hidden actions, there is a big gap between exact full surplus extraction and approximate full surplus extraction.

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Paper provided by UCLA Department of Economics in its series UCLA Economics Online Papers with number 374.

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Handle: RePEc:cla:uclaol:374

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Citations

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Cited by:
  1. Xianwen Shi, 2007. "Optimal Auctions with Information Acquisition," Working Papers tecipa-302, University of Toronto, Department of Economics.
  2. Vasiliki Skreta, 2007. "On the Informed Seller Problem: Optimal Information Disclosure," Levine's Bibliography 843644000000000222, UCLA Department of Economics.
  3. Johannes Horner & Satoru Takahashi & Nicolas Vieille, 2014. "Truthful Equilibria in Dynamic Bayesian Games," Levine's Working Paper Archive 786969000000000881, David K. Levine.
  4. Dirk Bergemann & Juuso Välimäki & Xianwen Shi, 2007. "Information Acquisition in Interdependent Value Auctions," Levine's Bibliography 843644000000000320, UCLA Department of Economics.
  5. Michihiro Kandori & Ichiro Obara, 2003. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," CIRJE F-Series CIRJE-F-255, CIRJE, Faculty of Economics, University of Tokyo.
  6. Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies (with M. Kandori)," UCLA Economics Online Papers 281, UCLA Department of Economics.
  7. Bikhchandani, Sushil, 2010. "Information acquisition and full surplus extraction," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2282-2308, November.
  8. Krähmer, Daniel, 2012. "Auction design with endogenously correlated buyer types," Journal of Economic Theory, Elsevier, vol. 147(1), pages 118-141.
  9. Ichiro Obara, . "Approximate Implementability with Ex Post Budget Balance (Joint with D. Rahman)," UCLA Economics Online Papers 399, UCLA Department of Economics.
  10. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.
  11. Ichiro Obara & David Rahman, 2006. "Approximate Implementability with Ex Post Budget Balance," Levine's Bibliography 321307000000000280, UCLA Department of Economics.

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