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Incentive compatible networks and the delegated networking principle

Author

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  • Gong, Rui
  • He, Jieshuang
  • Page, Frank

Abstract

We construct a model of a principal-agent game of network formation (over layered networks) with asymmetric information and we consider the following two questions: (1) Is it possible for the principal to design a mechanism that links the reports of agents about their private information and the set of connections allowed and recommended by the principal via the mechanism in such a way that players truthfully reveal their private information to the principal and follow the recommendations specified by the mechanism. (2) An even more fundamental question we address is whether or not it is possible for the principal to achieve the same outcome (as that achieved via a mechanism and centralized reporting) by instead choosing a profile of sets of allowable ways to connect (here modeled as player—club specific sets - or catalogs - of networks) and then delegating connection choices to each pair of agents. We call this approach to network formation with incomplete information delegated networking and we show, under relatively mild conditions on our game-theoretic model of network formation, that strategic network formation with incomplete information, implemented via a mechanism and centralized reporting, is equivalent to implementation via delegated networking with monitoring.

Suggested Citation

  • Gong, Rui & He, Jieshuang & Page, Frank, 2016. "Incentive compatible networks and the delegated networking principle," LSE Research Online Documents on Economics 66045, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:66045
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    File URL: http://eprints.lse.ac.uk/66045/
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    References listed on IDEAS

    as
    1. Page Jr., Frank H. & Wooders, Myrna, 2009. "Strategic basins of attraction, the path dominance core, and network formation games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 462-487, May.
    2. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
    3. Frank H. Page Jr., 1997. "Optimal deterministic contracting mechanisms for principal-agent problems with moral hazard and adverse selection," Review of Economic Design, Springer;Society for Economic Design, vol. 3(1), pages 1-13.
    4. Page, Frank H, Jr, 1992. "Mechanism Design for General Screening Problems with Moral Hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 265-281, April.
    5. C. J. Himmelberg & T. Parthasarathy & F. S. VanVleck, 1976. "Optimal Plans for Dynamic Programming Problems," Mathematics of Operations Research, INFORMS, vol. 1(4), pages 390-394, November.
    6. Page Jr., Frank H. & Wooders, Myrna, 2010. "Club networks with multiple memberships and noncooperative stability," Games and Economic Behavior, Elsevier, vol. 70(1), pages 12-20, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Incentive compatible multilayered networks; delegated networking principle; delegation principle; bilateral incentive compatibility; mechanism design; catalog games;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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