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Reciprocal Relationships and Mechanism Design

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  • Celik, Gorkem
  • Peters, Michael

Abstract

We study an incomplete information game in which players are involved in a reciprocal relationship that allows them to coordinate their actions by contracting among themselves. We model this as a competing mechanism game in which players have the ability to write contracts. We characterize the set of outcome functions that can be supported as equilibrium in this enhanced game. We use our characterization to show that the set of supportable outcomes is bigger than the set of outcomes supported by a centralized mechanism designer who can offer mechanisms in which all players participate. The difference is that the contracting game makes it possible for players to convey partial information about their type at the time they offer contracts.

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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number gorkem_celik-2011-19.

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Length: 0 pages
Date of creation: 01 Aug 2011
Date of revision: 01 Aug 2011
Handle: RePEc:ubc:pmicro:gorkem_celik-2011-19

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

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  1. 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.
  2. Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August.
  3. Laffont, J.J. & Martimort, D., 1996. "Collusion Under Asymmetric Information," Papers 95.389, Toulouse - GREMAQ.
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  6. Cramton, Peter C & Palfrey, Thomas R, 1990. "Cartel Enforcement with Uncertainty about Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 17-47, February.
  7. Celik, Gorkem & Peters, Michael, 2011. "Equilibrium rejection of a mechanism," Games and Economic Behavior, Elsevier, vol. 73(2), pages 375-387.
  8. Tan, Guofu & Yilankaya, Okan, 2004. "Ratifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs," Microeconomics.ca working papers tan-04-04-30-01-35-41, Vancouver School of Economics, revised 09 Jun 2006.
  9. Koessler, Frédéric & Lambert-Mogiliansky, Ariane, 2013. "Committing to transparency to resist corruption," Journal of Development Economics, Elsevier, vol. 100(1), pages 117-126.
  10. Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. Jean Tirole, 2012. "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, American Economic Association, vol. 102(1), pages 29-59, February.
  12. ehiel, Philippe & Benny Moldovanu & Ennio Stacchetti, 1994. "How (not) to sell nuclear weapons," Discussion Paper Serie B 288, University of Bonn, Germany.
  13. Thomas Philippon & Vasiliki Skreta, 2010. "Optimal Interventions in Markets with Adverse Selection," NBER Working Papers 15785, National Bureau of Economic Research, Inc.
  14. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
  15. Peters, Michael & Troncoso-Valverde, Cristian, 2010. "A Folk Theorem for Competing Mechanisms," Microeconomics.ca working papers michael_peters-2010-17, Vancouver School of Economics, revised 19 Oct 2013.
  16. Bernard Caillaud & Philippe Jehiel, 1998. "Collusion in Auctions with Externalities," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 680-702, Winter.
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Cited by:
  1. Frédéric Koessler & Ariane Lambert-Mogiliansky, 2010. "Committing to transparency to resist corruption," PSE Working Papers halshs-00564890, HAL.
  2. Simone Galperti, 2011. "Common Agency with Informed Principals: Menus and Signals," Discussion Papers 1541, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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