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Designing stable mechanisms for economic environments

  • Healy, Paul J.


    (Department of Economics, Ohio State University)

  • Mathevet, Laurent


    (Department of Economics, University of Texas)

We study the design of mechanisms that implement Lindahl or Walrasian allocations and whose Nash equilibria are dynamically stable for a wide class of adaptive dynamics. We argue that supermodularity is not a desirable stability criterion in this mechanism design context, focusing instead on contractive mechanisms. We provide necessary and sufficient conditions for a mechanism to Nash implement Lindahl or Walrasian allocations, show that these conditions are inconsistent with the contraction property when message spaces are one-dimensional, and then show how to use additional dimensions to achieve dynamic stability while gaining budget balance out of equilibrium.

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Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 7 (2012)
Issue (Month): 3 (September)

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Handle: RePEc:the:publsh:898
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