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The Interplay Between Incentives and Communication Complexity in Mechanism Design

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  • Timothy Van Zandt

    (INSEAD)

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    Abstract

    The curse of the Revelation Principle is that it leads us to focus on unrealistic mechanisms in which agents report all private information to the principal, who then makes all decisions centrally. This is not true when communication costs are introduced. Then partial communication of information, sequential back-and-forth conversations, and decentralization of decisions become part of optimal mechanisms. This paper looks at the interplay between the incentive constraints and the communication constraints. When can they be separated, so that e.g. one can separately study the incentive compatibility of a social choice rule and the minimum-cost communication protocol that realizes the social choice rule?

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    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 480.

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    Date of creation: 2008
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    Handle: RePEc:red:sed008:480

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    1. Michel Poitevin, 2000. "Can the theory of incentives explain decentralization?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(4), pages 878-906, November.
    2. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 44(2), pages 367-390, June.
    3. Laffont, J.J. & Martimort, D., 1995. "Collusion and Delegation," Papers, Toulouse - GREMAQ 95.397, Toulouse - GREMAQ.
    4. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 15(4), pages 445-484, December.
    5. Timothy Van Zandt, 2007. "Communication Complexity and Mechanism Design," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(2-3), pages 543-553, 04-05.
    6. Nisan, Noam & Segal, Ilya, 2006. "The communication requirements of efficient allocations and supporting prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 129(1), pages 192-224, July.
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