Mechanism Design with Private Communication
We investigate the consequences of assuming "private" communication between the principal and each of his agents in an otherwise standard mechanism design setting.Doing so simplifies significantly optimal mechanisms and institutions. Moreover, it restores continuity of the principal's payoff and of the optimal mechanism with respect to the information structure while still maintaining the useful role of correlation to better extract the agents' information rent. We first prove a "Revelation Principle with private communication" that characterizes the set of allocations implementable under private communication by means of simple "non-manipulability constraints". We also demonstrate a "Taxation Principle" which helps drawing some links between private communication and limited commitment on the principal's side. Equipped with those tools, we derive optimal non-manipulable mechanisms in various environments (unrelated projects, auctions, team production).
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