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Informational size and two-stage mechanisms

Author

Listed:
  • Richard P. McLean

    (Department of Economics, Rutgers University)

  • Andrew Postlewaite

    (Department of Economics, University of Pennsylvania)

Abstract

We showed in McLean and Postlewaite (2014) that when agents are informationally small, there exist small modifications to VCG mechanisms in interdependent value problems that restore incentive compatibility. This paper presents a two-stage mechanism that similarly restores incentive compatibility. The first stage essentially elicits that part of the agents’ private information that induces interdependence and reveals it to all agents, transforming the interdependent value problem into a private value problem. The second stage is a VCG mechanism for the now private value problem. Agents typically need to transmit substantially less information in the two stage mechanism than would be necessary for a single stage mechanism. Lastly, the firrst stage that elicits the part of the agents’ private information that induces interdependence can be used to transform certain other interdependent value problems into private value problems.

Suggested Citation

  • Richard P. McLean & Andrew Postlewaite, 2015. "Informational size and two-stage mechanisms," PIER Working Paper Archive 15-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:15-011
    as

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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/15-011.pdf
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    References listed on IDEAS

    as
    1. , & ,, 2015. "Implementation with interdependent valuations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    2. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June.
    3. John O. Ledyard & Thomas R. Palfrey, 1994. "Voting and Lottery Drafts as Efficient Public Goods Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 327-355.
    4. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    5. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Auctions; Incentive Compatibility; Mechanism Design; Interdependent Values; Ex Post Incentive Compatibility; Informational Size;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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