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Mechanism design with a restricted action space

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  • Blumrosen, Liad
  • Feldman, Michal

Abstract

While traditional mechanism design typically assumes isomorphism between the type space of the players and their action space, behavioral, technical or regulatory factors can severely restrict the set of actions that are actually available to players. We study single-parameter mechanism-design problems in environments with restricted action spaces. In our first main result, we provide sufficient conditions under which the information-theoretically optimal solution can be implemented in equilibrium. Our second main result shows that for a wide family of social-choice rules the optimal mechanisms with k actions incur an expected loss of O(1k2) compared to the optimal mechanisms with unrestricted action space. We also fully characterize the optimal mechanisms in some simple environments and, finally, we apply our general results to signaling games, public-good models and project planning.

Suggested Citation

  • Blumrosen, Liad & Feldman, Michal, 2013. "Mechanism design with a restricted action space," Games and Economic Behavior, Elsevier, vol. 82(C), pages 424-443.
  • Handle: RePEc:eee:gamebe:v:82:y:2013:i:c:p:424-443
    DOI: 10.1016/j.geb.2013.03.005
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    References listed on IDEAS

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    Cited by:

    1. Ryuji Sano, 2016. "Iterative Revelation Mechanisms," KIER Working Papers 937, Kyoto University, Institute of Economic Research.

    More about this item

    JEL classification:

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

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