Equilibrium Rejection of a Mechanism
AbstractWe 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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Date of creation: 06 Aug 2008
Date of revision: 06 Aug 2008
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Mechanism design; Default game; Cartel agreements;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-21 (All new papers)
- NEP-CDM-2008-08-21 (Collective Decision-Making)
- NEP-CTA-2008-08-21 (Contract Theory & Applications)
- NEP-GTH-2008-08-21 (Game Theory)
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