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Mechanism Design with Collusion and Correlation

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  • Laffont, Jean-Jacques
  • Martimort, David

Abstract

In a public good environment with positively correlated types, we characterize optimal mechanisms when agents have private information and can enter collusive agreements. First, we prove a weak-collusion-proof principle according to which there is no restriction for the principal in offering weak-collusion-proof mechanisms. Second, with this principle, we characterize the set of allocations that satisfy individual and coalitional incentive constraints. The optimal weakly collusion-proof mechanism calls for distortions away from first-best efficiency obtained without collusion. Allowing collusion restores continuity between the correlated and the uncorrelated environments. When the correlation becomes almost perfect, first-best efficiency is approached. Finally, the optimal collusion-proof mechanism is strongly ratifiable.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 81.

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Date of creation: 1998
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Publication status: Published in Econometrica, vol.�68, n°2, mars 2000, p.�309-342.
Handle: RePEc:ide:wpaper:1283

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  1. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  2. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  3. E. Maskin, 1978. "Implementation and Strong Nash Equilibrium," Working papers 216, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Steven A. Matthews & Andrew Postlewaite, 1987. "Pre-Play Communication in Two-Person Sealed-Bid Double Auctions," Discussion Papers 744R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Mailath, George J & Postlewaite, Andrew, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 351-67, July.
  6. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
  7. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
  8. Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
  9. Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August.
  10. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  11. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
  12. Green, Jerry & Laffont, Jean-Jacques, 1979. "On Coalition Incentive Compatibility," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 243-54, April.
  13. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
  14. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
  15. Laffont, Jean-Jacques & Maskin, Eric, 1980. "A Differential Approach to Dominant Strategy Mechanisms," Econometrica, Econometric Society, vol. 48(6), pages 1507-20, September.
  16. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  17. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
  18. Riordan, Michael H. & Sappington, David E. M., 1988. "Optimal contracts with public ex post information," Journal of Economic Theory, Elsevier, vol. 45(1), pages 189-199, June.
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