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The Full Surplus Extraction Theorem with Hidden Actions

Author

Listed:
  • Obara Ichiro

    (UCLA, iobara@econ.ucla.edu)

Abstract

Consider a situation in which a principal commits to a mechanism first and then agents choose unobservable actions before their payoff-relevant types are realized. The agents' actions may affect not only their payoffs directly but also the distribution of their types as well. This paper extends Crémer and McLean's full surplus extraction theorem to such a setting. In this environment, it is shown that a principal may not succeed in extracting full surplus from agents when there are many actions to which the agents can deviate.However, it is also shown that a principal can extract full surplus generically given any approximately efficient (completely) mixed action profile. This is achieved by using a general mechanism where agents announce both their types and their realized actions. Therefore, with hidden actions, there is a big gap between exact full surplus extraction and approximate full surplus extraction.

Suggested Citation

  • Obara Ichiro, 2008. "The Full Surplus Extraction Theorem with Hidden Actions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, March.
    • Handle: RePEc:bpj:bejtec:v:8:y:2008:i:1:n:8
    DOI: 10.2202/1935-1704.1399
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    Cited by:

    1. Hitoshi Matsushima & Shunya Noda, 2019. "Mechanism Design with General Ex-Ante Investments (Revised version of F415 )," CARF F-Series CARF-F-464, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Ichiro Obara, "undated". "Approximate Implementability with Ex Post Budget Balance (Joint with D. Rahman)," UCLA Economics Online Papers 399, UCLA Department of Economics.
    3. Vasiliki Skreta, 2011. "On the informed seller problem: optimal information disclosure," Review of Economic Design, Springer;Society for Economic Design, vol. 15(1), pages 1-36, March.
    4. David Rahman, 2012. "But Who Will Monitor the Monitor?," American Economic Review, American Economic Association, vol. 102(6), pages 2767-2797, October.
    5. Ichiro Obara & David Rahman, 2006. "Approximate Implementability with Ex Post Budget Balance," Levine's Bibliography 321307000000000280, UCLA Department of Economics.
    6. Hitoshi Matsushima & Shunya Noda, 2017. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure-VCG," CIRJE F-Series CIRJE-F-1057, CIRJE, Faculty of Economics, University of Tokyo.
    7. Krähmer, Daniel, 2012. "Auction design with endogenously correlated buyer types," Journal of Economic Theory, Elsevier, vol. 147(1), pages 118-141.
    8. Michihiro Kandori & Ichiro Obara, 2006. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," Econometrica, Econometric Society, vol. 74(2), pages 499-519, March.
    9. Hitoshi Matsushima & Shunya Noda, 2017. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure-VCG (Revised version of F-386)," CARF F-Series CARF-F-415, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    10. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    11. Krähmer, Daniel, 2020. "Information disclosure and full surplus extraction in mechanism design," Journal of Economic Theory, Elsevier, vol. 187(C).
    12. Herweg, Fabian & Schmidt, Klaus M., 2020. "Bayesian implementation and rent extraction in a multi-dimensional procurement problem," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    13. Daniel Kraehmer, 2018. "Full surplus extraction in mechanism design with information disclosure," CRC TR 224 Discussion Paper Series crctr224_011_2018, University of Bonn and University of Mannheim, Germany.
    14. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.
    15. Matsushima, Hitoshi & Noda, Shunya, 2023. "Mechanism design with general ex-ante investments," Journal of Mathematical Economics, Elsevier, vol. 106(C).
    16. Bikhchandani, Sushil, 2010. "Information acquisition and full surplus extraction," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2282-2308, November.
    17. Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies (with M. Kandori)," UCLA Economics Online Papers 281, UCLA Department of Economics.
    18. , & ,, 2015. "Implementation with interdependent valuations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    19. Hitoshi Matsushima & Shunya Noda, 2016. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure Groves," CIRJE F-Series CIRJE-F-1015, CIRJE, Faculty of Economics, University of Tokyo.
    20. Johannes Hörner & Satoru Takahashi & Nicolas Vieille, 2015. "Truthful Equilibria in Dynamic Bayesian Games," Econometrica, Econometric Society, vol. 83(5), pages 1795-1848, September.
    21. Noda, Shunya, 2019. "Full surplus extraction and within-period ex post implementation in dynamic environments," Theoretical Economics, Econometric Society, vol. 14(1), January.
    22. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.
    23. Awaya, Yu & Do, Jihwan, 2022. "Incentives under equal-pay constraint and subjective peer evaluation," Games and Economic Behavior, Elsevier, vol. 135(C), pages 41-59.
    24. Dirk Bergemann & Xianwen Shi & Juuso Valimaki, 2009. "Information Acquisition in Interdependent Value Actions," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 61-89, March.
    25. Sushil Bikhchandani & Ichiro Obara, 2017. "Mechanism design with information acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 783-812, March.

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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