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From equals to despots: The dynamics of repeated decision making in partnerships with private information

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  • Carrasco, Vinicius
  • Fuchs, William
  • Fukuda, Satoshi

Abstract

This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic “regime shifts.”

Suggested Citation

  • Carrasco, Vinicius & Fuchs, William & Fukuda, Satoshi, 2019. "From equals to despots: The dynamics of repeated decision making in partnerships with private information," Journal of Economic Theory, Elsevier, vol. 182(C), pages 402-432.
  • Handle: RePEc:eee:jetheo:v:182:y:2019:i:c:p:402-432
    DOI: 10.1016/j.jet.2019.03.007
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    More about this item

    Keywords

    Repeated collective decision making; Dictatorial mechanism; Dynamic Bayesian mechanism design; Renegotiation-proofness; Regime shifts;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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