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On the Foundations of Ex Post Incentive-Compatible Mechanisms

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  • Takuro Yamashita
  • Shuguang Zhu

Abstract

This paper considers an interdependent-value robust mechanism design problem, where the principal has little knowledge about the agent's belief. Although ex post incentive-compatible (EPIC) mechanisms can implement allocations without any knowledge about the agent's belief, we show that, under a certain condition (order-reversing interdependence), there exists a non-EPIC mechanism that achieves a strictly higher expected revenue than any EPIC mechanism given whatever (admissible) belief structure the agent may enjoy. Conversely, with sufficiently small interdependence, such a non-EPIC mechanism does not exist: for some (admissible) belief structure, an EPIC mechanism achieves the highest expected revenue.

Suggested Citation

  • Takuro Yamashita & Shuguang Zhu, 2022. "On the Foundations of Ex Post Incentive-Compatible Mechanisms," American Economic Journal: Microeconomics, American Economic Association, vol. 14(4), pages 494-514, November.
  • Handle: RePEc:aea:aejmic:v:14:y:2022:i:4:p:494-514
    DOI: 10.1257/mic.20200174
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    Cited by:

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    2. Satoshi Nakada & Shmuel Nitzan & Takashi Ui, 2022. "Robust Voting under Uncertainty," Working Papers on Central Bank Communication 038, University of Tokyo, Graduate School of Economics.
    3. Barberà, Salvador & Berga, Dolors & Moreno, Bernardo, 2022. "Restricted environments and incentive compatibility in interdependent values models," Games and Economic Behavior, Elsevier, vol. 131(C), pages 1-28.
    4. Wanchang Zhang, 2022. "Robust Private Supply of a Public Good," Papers 2201.00923, arXiv.org, revised Jan 2022.
    5. Pham, Hien & Yamashita, Takuro, 2021. "Auction Design with Heterogeneous Priors," TSE Working Papers 21-1260, Toulouse School of Economics (TSE), revised Mar 2023.
    6. Tilman Börgers, 2017. "(No) Foundations of dominant-strategy mechanisms: a comment on Chung and Ely (2007)," Review of Economic Design, Springer;Society for Economic Design, vol. 21(2), pages 73-82, June.
    7. Wanchang Zhang, 2021. "Random Double Auction: A Robust Bilateral Trading Mechanism," Papers 2105.05427, arXiv.org, revised May 2022.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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