The Design of Ambiguous Mechanisms
AbstractThis paper considers the optimal mechanism design problem of an expected revenue maximizing principal who wants to sell a single unit of a good to an agent who is ambiguity averse in the sense of Gilboa and Schmeidler (1989). We show that the optimal static mechanism is an ambiguous mechanism. An ambiguous mechanism specifies a message space and a set of outcome functions. After showing that (a version of) the Revelation Principle holds in our environment, we give an exact characterization of the (smallest) optimal ambiguous mechanism. If the type set is composed of N (finite) types, then the (smallest) optimal ambiguous mechanism contains N - 1 outcome functions. We show that the share of the surplus that the designer can extract from the agent increases as the type set becomes larger and the probability of each single type decreases. In the limiting case where the agent’s type is drawn from a non-atomic distribution on an interval, the optimal ambiguous mechanism extracts all the rent from the agent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 446.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Web page: http://www.igier.unibocconi.it/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-CTA-2012-07-23 (Contract Theory & Applications)
- NEP-GTH-2012-07-23 (Game Theory)
- NEP-MIC-2012-07-23 (Microeconomics)
- NEP-UPT-2012-07-23 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Subir Bose & Arup Daripa, 2008.
"A Dynamic Mechanism and Surplus Extraction Under Ambiguity,"
Discussion Papers in Economics
08/24, Department of Economics, University of Leicester.
- Bose, Subir & Daripa, Arup, 2009. "A dynamic mechanism and surplus extraction under ambiguity," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2084-2114, September.
- Subir Bose & Arup Daripa, 2007. "A Dynamic Mechanism and Surplus Extraction Under Ambiguity," Birkbeck Working Papers in Economics and Finance 0716, Birkbeck, Department of Economics, Mathematics & Statistics.
- Andreas Pape & Subir Bose & Emre Ozdenoren, 2004.
"Optimal auctions with ambiguity,"
Econometric Society 2004 North American Summer Meetings
609, Econometric Society.
- Turocy, Theodore L., 2008. "Auction choice for ambiguity-averse sellers facing strategic uncertainty," Games and Economic Behavior, Elsevier, vol. 62(1), pages 155-179, January.
- Gilboa,Itzhak, 2009.
"Theory of Decision under Uncertainty,"
Cambridge University Press, number 9780521741231, December.
- Dirk Bergemann & Karl Schlag, 2005.
"Robust Monopoly Pricing,"
Cowles Foundation Discussion Papers
1527R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2007.
- Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing," Cowles Foundation Discussion Papers 1527RR, Cowles Foundation for Research in Economics, Yale University, revised Sep 2008.
- Dirk Bergemann & Karl Schlag, 2007. "Robust Monopoly Pricing," Levine's Bibliography 321307000000000983, UCLA Department of Economics.
- Kim-Sau Chung & Jeffrey C. Ely, 2003.
"Foundations of Dominant Strategy Mechanisms,"
1372, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jeffrey C. Ely & Kim-Sau Chung, 2004. "Foundations of Dominant Strategy Mechanisms," Econometric Society 2004 North American Summer Meetings 169, Econometric Society.
- Jeff Ely, 2003. "Foundations of Dominant Strategy Mechanisms," Theory workshop papers 658612000000000064, UCLA Department of Economics.
- Bernard ELYAKIME & Jean-Jacques LAFFONT & Patrice LOISEL & Quang VUONG, 1994.
"First-Price Sealed-Bid Auctions with Secret Reservation Prices,"
Annales d'Economie et de Statistique,
ENSAE, issue 34, pages 115-141.
- Elyakime, Bernard & Laffont, Jean-Jacques & Loisel, Patrice & Vuong, Quang, 1993. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," IDEI Working Papers 27, Institut d'Économie Industrielle (IDEI), Toulouse.
- Kos, Nenad & Messner, Matthias, 2013.
"Extremal incentive compatible transfers,"
Journal of Economic Theory,
Elsevier, vol. 148(1), pages 134-164.
- Martin Szydlowski, 2012. "Ambiguity in Dynamic Contracts," Discussion Papers 1543, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.