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Robust Mechanism Design

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Abstract

The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying implementation on richer type spaces, with more higher order uncertainty. We study the "ex post equivalence" question: when is interim implementation on all possible type spaces equivalent to requiring ex post implementation on the space of payoff types? We show that ex post equivalence holds when the social choice correspondence is a function and in simple quasi-linear environments. When ex post equivalence holds, we identify how large the type space must be to obtain the equivalence. We also show that ex post equivalence fails in general, including in quasi-linear environments with budget balance. For quasi-linear environments, we provide an exact characterization of when interim implementation is possible in rich type spaces. In this environment, the planner can fully extract playersÌ belief types, so the incentive constraints reduce to conditions distinguishing types with the same beliefs about othersÌ types but different payoff types.

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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1421.

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Length: 56 pages
Date of creation: May 2003
Date of revision:
Publication status: Published in Econometrica (2005), 73(6): 1771-1813
Handle: RePEc:cwl:cwldpp:1421

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Mechanism design; Common knowledge; Universal type space; Interim equilibrium; Ex-post equilibrium; Dominant strategies;

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  1. Stephen Morris & Dirk Bergemann, 2004. "Robust Mechanism Design," Yale School of Management Working Papers ysm380, Yale School of Management.
  2. D'ASPREMONT, Claude & CREMER, Jacques & GERARD-VARET, Louis-André, . "Balanced Bayesian mechanisms," CORE Discussion Papers RP -1690, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  30. repec:wop:humbsf:2000-72 is not listed on IDEAS
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