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Robust Mechanism Design

The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying implementation on richer type spaces, with more higher order uncertainty. We study the "ex post equivalence" question: when is interim implementation on all possible type spaces equivalent to requiring ex post implementation on the space of payoff types? We show that ex post equivalence holds when the social choice correspondence is a function and in simple quasi-linear environments. When ex post equivalence holds, we identify how large the type space must be to obtain the equivalence. We also show that ex post equivalence fails in general, including in quasi-linear environments with budget balance. For quasi-linear environments, we provide an exact characterization of when interim implementation is possible in rich type spaces. In this environment, the planner can fully extract playersÌ belief types, so the incentive constraints reduce to conditions distinguishing types with the same beliefs about othersÌ types but different payoff types.

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File URL: http://cowles.econ.yale.edu/P/cd/d14a/d1421.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1421.

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Length: 56 pages
Date of creation: May 2003
Date of revision:
Publication status: Published in Econometrica (2005), 73(6): 1771-1813
Handle: RePEc:cwl:cwldpp:1421
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  4. Aviad Heifetz & Zvika Neeman, 2004. "On the Generic (Im)possibility of Full Surplus Extraction in Mechanism Design," Discussion Paper Series dp350, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
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  6. Eliaz, K., 1999. "Fault Tolerant Implementation," Papers 21-99, Tel Aviv.
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  11. Claude d'Aspremont & Jacques Crémer & Louis-André Gérard-Varet, 2003. "Correlation, independence, and Bayesian incentives," Social Choice and Welfare, Springer, vol. 21(2), pages 281-310, October.
  12. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. d'Aspremont, Claude & Crémer, Jacques & Gérard-Varet, Louis-André, 2003. "Balanced Bayesian Mechanisms," IDEI Working Papers 196, Institut d'Économie Industrielle (IDEI), Toulouse.
  14. Neeman, Zvika, 2004. "The relevance of private information in mechanism design," Journal of Economic Theory, Elsevier, vol. 117(1), pages 55-77, July.
  15. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
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  17. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
  18. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
  19. Dirk Bergemann & Stephen Morris, 2005. "Robust Implementation: The Role of Large Type Spaces," Levine's Bibliography 784828000000000116, UCLA Department of Economics.
  20. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June.
  21. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
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  24. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
  25. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  26. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine.
  27. Philippe Jehiel & Moritz Meyer-ter-Vehn & Benny Moldovanu & William R. Zame, 2006. "The Limits of ex post Implementation," Econometrica, Econometric Society, vol. 74(3), pages 585-610, 05.
  28. Hagerty, Kathleen M. & Rogerson, William P., 1987. "Robust trading mechanisms," Journal of Economic Theory, Elsevier, vol. 42(1), pages 94-107, June.
  29. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
  30. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, vol. 59(1), pages 189-198, February.
  31. Partha Dasgupta & Eric Maskin, 2000. "Efficient Auctions," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 341-388, May.
  32. Walker, Mark, 1980. "On the Nonexistence of a Dominant Strategy Mechanism for Making Optimal Public Decisions," Econometrica, Econometric Society, vol. 48(6), pages 1521-40, September.
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