Implementation with securities
AbstractWe study mechanism design in a setting where agents know their types but are uncertain about the utility from any alternative. The lnal realized utility of each agent is observed by the principal and can be contracted upon. In such environments, the principal is not restricted to using only transfers but can employ security contracts which determine each agent's payoff as a function of their realized utility and the profile of announced types. We show that using security contracts instead of transfers expands the set of (dominant strategy) implementable social choice functions. Our main result is that in a lnite type space, every social choice function that can be implemented using a security contract can also be implemented using a royalty contract. Royalty contracts are simpler and commonly used security contracts, in which agents initially pay a transfer and keep a fraction of their realized utility. We also identify a condition called acyclicity that is necessary and suncient for implementation in these environments.
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Bibliographic InfoPaper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 13-05.
Length: 28 pages
Date of creation: Apr 2013
Date of revision:
dominant strategy implementation; acyclicity; security contracts; royalty contracts; cycle monotonicity;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D47 - Microeconomics - - Market Structure and Pricing - - - Market Design
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-22 (All new papers)
- NEP-CTA-2013-11-22 (Contract Theory & Applications)
- NEP-MIC-2013-11-22 (Microeconomics)
- NEP-UPT-2013-11-22 (Utility Models & Prospect Theory)
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