Renegotiation-proof Mechanism Design
AbstractWe study a mechanism design problem under the assumption that renegotiation cannot be prevented. We investigate what kind of equilibria of which mechanisms are renegotiation-proof under a variety of renegotiation procedures, and which social choice functions can be implemented in a way that is renegotiation-proof. In complete information environments, we show that the set of ex post renegotiation-proof implementable social choice functions contains all ex post efficient allocations when there at least three agents, but only budget balanced Groves allocations when there are two agents. In incomplete information environments with correlated beliefs and at least three agents, every ex post efficient social choice function can be implemented in the presence of ex post renegotiation, but with independent private values only social choice functions that are given by budget balanced “Groves in expectations” mechanisms are implementable in such a way. We further show that the requirement of interim renegotiation-proofness does not impose additional restrictions on implementable social choice functions under complete information, but is likely to impose additional restrictions under incomplete information.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20101.
Date of creation: 2010
Date of revision:
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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/econref/WorkingPapers/departmentresearchreports.asp
Mechanism design; Implementation; Ex post renegotiation; Interim renegotiation;
Find related papers by JEL classification:
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-13 (All new papers)
- NEP-CDM-2010-03-13 (Collective Decision-Making)
- NEP-CTA-2010-03-13 (Contract Theory & Applications)
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