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Equilibrium Rejection of a Mechanism

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  • Celik, Gorkem
  • Peters, Michael

Abstract

We study a mechanism design problem in which players can take part in a mechanism to coordinate their actions in a default game. By refusing to participate in the mechanism, a player can revert to playing the default game non-cooperatively. We show with an example that some allocation rules are implementable only with mechanisms which will be rejected on the equilibrium path. In our construction, a refusal to participate conveys information about the types of the players. This information causes the default game to be played under different beliefs, and more importantly under different higher order beliefs, than the interim ones. We find a lower bound on all the implementable payoffs. We use this bound to establish a condition on the default game under which all the implementable outcomes are truthfully implementable, without the need to induce rejection of the mechanism.

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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number gorkem_celik-2008-10.

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Length: 0 pages
Date of creation: 06 Aug 2008
Date of revision: 06 Aug 2008
Handle: RePEc:ubc:pmicro:gorkem_celik-2008-10

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Web page: http://www.economics.ubc.ca/

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Keywords: Mechanism design; Default game; Cartel agreements;

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References

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  1. Lagunoff Roger D., 1995. "Resilient Allocation Rules for Bilateral Trade," Journal of Economic Theory, Elsevier, vol. 66(2), pages 463-487, August.
  2. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
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  10. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  11. Roger B. Myerson, 1981. "Mechanism Design by an Informed Principal," Discussion Papers 481, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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Citations

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Cited by:
  1. Celik, Gorkem & Peters, Michael, 2011. "Reciprocal Relationships and Mechanism Design," Microeconomics.ca working papers gorkem_celik-2011-19, Vancouver School of Economics, revised 01 Aug 2011.
  2. Jullien, Bruno & Pouyet, Jérôme & Sand-Zantman, Wilfried, 2013. "An Offer You Can't Refuse: Early Contracting with Endogenous Threat," TSE Working Papers 13-415, Toulouse School of Economics (TSE), revised Jun 2014.
  3. Madhav S. Aney, 2012. "Conflict with Quitting Rights: A Mechanism Design Approach," Working Papers 18-2012, Singapore Management University, School of Economics.

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