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Dynamic mechanism design with interdependent valuations

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  • Swaprava Nath
  • Onno Zoeter
  • Y. Narahari
  • Christopher Dance

Abstract

We consider an infinite horizon dynamic mechanism design problem with interdependent valuations. In this setting the type of each agent is assumed to be evolving according to a first order Markov process and is independent of the types of other agents. However, the valuation of an agent can depend on the types of other agents, which makes the problem fall into an interdependent valuation setting. Designing truthful mechanisms in this setting is non-trivial in view of an impossibility result which says that for interdependent valuations, any efficient and ex-post incentive compatible mechanism must be a constant mechanism, even in a static setting. Mezzetti (Econometrica 72(5):1617–1626, 2004 ) circumvents this problem by splitting the decisions of allocation and payment into two stages. However, Mezzetti’s result is limited to a static setting and moreover in the second stage of that mechanism, agents are weakly indifferent about reporting their valuations truthfully. This paper provides a first attempt at designing a dynamic mechanism which is efficient, strict ex-post incentive compatible and ex-post individually rational in a setting with interdependent values and Markovian type evolution. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Swaprava Nath & Onno Zoeter & Y. Narahari & Christopher Dance, 2015. "Dynamic mechanism design with interdependent valuations," Review of Economic Design, Springer;Society for Economic Design, vol. 19(3), pages 211-228, September.
    • Handle: RePEc:spr:reecde:v:19:y:2015:i:3:p:211-228
    DOI: 10.1007/s10058-015-0177-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic mechanism design; Interdependent value; Dynamic pivot mechanism; Markov decision problem; Dynamic games; Nash equilibrium; Social choice; Collective action; C72; C73; D71;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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