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Mechanism Design with Limited Commitment

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  • Laura Doval
  • Vasiliki Skreta

Abstract

We develop a tool akin to the revelation principle for mechanism design with limited commitment. We identify a canonical class of mechanisms rich enough to replicate the payoffs of any equilibrium in a mechanism-selection game between an uninformed designer and a privately informed agent. A cornerstone of our methodology is the idea that a mechanism should encode not only the rules that determine the allocation, but also the information the designer obtains from the interaction with the agent. Therefore, how much the designer learns, which is the key tension in design with limited commitment, becomes an explicit part of the design. We show how this insight can be used to transform the designer's problem into a constrained optimization one: To the usual truthtelling and participation constraints, one must add the designer's sequential rationality constraint.

Suggested Citation

  • Laura Doval & Vasiliki Skreta, 2018. "Mechanism Design with Limited Commitment," Papers 1811.03579, arXiv.org, revised Aug 2020.
  • Handle: RePEc:arx:papers:1811.03579
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    Cited by:

    1. Laura Doval & Vasiliki Skreta, 2019. "Optimal mechanism for the sale of a durable good," Papers 1904.07456, arXiv.org, revised Aug 2020.
    2. Juan Beccuti & Marc Moeller, 2019. "Screening by Mode of Trade," Diskussionsschriften dp1908, Universitaet Bern, Departement Volkswirtschaft.
    3. Maryam Saeedi & Ali Shourideh, 2020. "Optimal Rating Design," Papers 2008.09529, arXiv.org, revised Sep 2020.
    4. Doval, Laura & Skreta, Vasiliki, 2019. "Optimal mechanism for the sale of a durable good," CEPR Discussion Papers 13967, C.E.P.R. Discussion Papers.
    5. Juan Beccuti, 2020. "On the Optimality of Price-posting in Rental Markets," Diskussionsschriften dp2007, Universitaet Bern, Departement Volkswirtschaft.
    6. Laura Doval & Vasiliki Skreta, 2018. "Constrained Information Design: Toolkit," Papers 1811.03588, arXiv.org.

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