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Individually Rational, Balanced-Budget Bayesian Mechanisms and the

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  • Sergei Severinov
  • Grigory Kosenok
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    Abstract

    We investigate the issue of implementation via individually rational ex-post budget-balanced Bayesian mechanisms. We demonstrate that all social choice rules that generate a nonnegative ex-ante surplus, including ex-post efficient ones, can generically be implemented via such mechanisms for any profile of the utility functions. The aggregate expected surplus in these mechanisms can be distributed in an arbitrary way. Also generically, any ex-post efficient social choice rule can be implemented in an informed principal framework, i.e. when the mechanism is offered by one of the informed parties. Only ex-post efficient social choice rules that allocate all surplus to the party designing the mechanism are both sequential equilibrium outcomes and neutral optima, i.e. outcomes that can never be blocked. This result implies that even an informed principal can extract all surplus from players in a Bayesian mechanism

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 633.

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    Date of creation: 2004
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    Handle: RePEc:red:sed004:633

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    Keywords: mechanism design; individual rationality; ex-post budget balancing; surplus allocation; informed principal.;

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    1. d'ASPREMONT, Claude & CREMER, Jacques & GERARD-VARET, Louis-André, . "Incentives and the existence of Pareto-optimal revelation mechanisms," CORE Discussion Papers RP -902, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. D'Aspremont, C. & Cremer, J. & Gerard-Varet, L.-A., 1990. "Incentives and the existence of Pareto-optimal revelation," CORE Discussion Papers 1990015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Roger B. Myerson, 1981. "Mechanism Design by an Informed Principal," Discussion Papers 481, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    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 345-61, March.
    5. Chung, Kim-Sau, 1999. "A Note on Matsushima's Regularity Condition," Journal of Economic Theory, Elsevier, vol. 87(2), pages 429-433, August.
    6. 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.
    7. Matsushima, Hitoshi, 1991. "Incentive compatible mechanisms with full transferability," Journal of Economic Theory, Elsevier, vol. 54(1), pages 198-203, June.
    8. Aoyagi, Masaki, 1998. "Correlated Types and Bayesian Incentive Compatible Mechanisms with Budget Balance," Journal of Economic Theory, Elsevier, vol. 79(1), pages 142-151, March.
    9. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
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