Reciprocal Relationships and Mechanism Design
AbstractWe 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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Date of creation: 01 Aug 2011
Date of revision: 01 Aug 2011
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-BEC-2011-08-09 (Business Economics)
- NEP-CTA-2011-08-09 (Contract Theory & Applications)
- NEP-GTH-2011-08-09 (Game Theory)
- NEP-MIC-2011-08-09 (Microeconomics)
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