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Self-rejecting mechanisms

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  • Correia-da-Silva, João

Abstract

In mechanism design problems where the outside option is a game, a version of the intuitive criterion restricts beliefs formed off-path in case of disagreement, and thus credible punishments for rejecting to participate. However, for virtual implementation, participation constraints can be relaxed by “designing” beliefs following disagreement using self-rejections: with a small probability that depends on the reported type profile, a mediator rejects the agreement in a way that is indistinguishable from rejection by an agent. Participation constraints can be further relaxed if the mediator makes private recommendations before the outside game is played. Any punishment (by all players except the rejector) such that each player-type is never asked to use an action he does not use in any Bayesian solution of the outside game is a credible punishment.

Suggested Citation

  • Correia-da-Silva, João, 2020. "Self-rejecting mechanisms," Games and Economic Behavior, Elsevier, vol. 120(C), pages 434-457.
    • Handle: RePEc:eee:gamebe:v:120:y:2020:i:c:p:434-457
    DOI: 10.1016/j.geb.2020.01.006
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    More about this item

    Keywords

    Optimal punishment; Learning from disagreement; Intuitive criterion; Virtual implementation; Self-rejection;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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