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Detectability, Duality, and Surplus Extraction

Author

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  • Giuseppe Lopomo
  • Luca Rigotti
  • Chris Shannon

Abstract

We study surplus extraction in the general environment of McAfee and Reny (1992), and provide two alternative proofs of their main theorem. The first is an analogue of the classic argument of Cremer and McLean (1985, 1988), using geometric features of the set of agents' beliefs to construct a menu of contracts extracting the desired surplus. This argument, which requires a finite state space, also leads to a counterexample showing that full extraction is not possible without further significant conditions on agents' beliefs or surplus, even if the designer offers an infinite menu of contracts. The second argument uses duality and applies for an infinite state space, thus yielding the general result of McAfee and Reny (1992). Both arguments suggest methods for studying surplus extraction in settings beyond the standard model, in which the designer or agents might have objectives other than risk neutral expected value maximization.

Suggested Citation

  • Giuseppe Lopomo & Luca Rigotti & Chris Shannon, 2019. "Detectability, Duality, and Surplus Extraction," Papers 1905.12788, arXiv.org, revised Oct 2021.
    • Handle: RePEc:arx:papers:1905.12788
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    2. Guo, Huiyi, 2024. "Collusion-proof mechanisms for full surplus extraction," Games and Economic Behavior, Elsevier, vol. 145(C), pages 263-284.
    3. Yeon‐Koo Che & Jinwoo Kim & Fuhito Kojima & Christopher Thomas Ryan, 2024. "“Near” Weighted Utilitarian Characterizations of Pareto Optima," Econometrica, Econometric Society, vol. 92(1), pages 141-165, January.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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