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Credible Implementation

  • Luis Corchón

    ()

    (Universidad de Alicante)

  • Bhaskar Chakravorti

    (Harvard Business School)

  • Simon Wilkie

    (California Institute of Technology)

The theory of mechanism design and implementation abounds with clever mechanisms whose equilibrium outcomes are optimal according to some social choice rule. However, the cleverness of these mechanisms relies on intricate systems of rewards and punishments off-the-equilibrium path. Generally, it is not in the designer's best interest to go through with the reward/punishment in the "subgame" arising from some disequilibrium play. This would make the mechanism's outcome function non-credible. In the context of exchange economies, we define an appropiate notion of "credible" implementation and show that (a) the non-dictatorial Pareto correspondence can be crediblyimplemented (b) there exists no credibly implementable Pareto-efficient and individually rational social choice rule and (c) there exists no credibly implementable fair social choice rules. We derive necessary and sufficient conditions for credible implementability of choice rules. The main implication is paradoxical: it is suboptimal for the designer to be endowed with "too much" information about the economy. Finally, we show that the negative results persist even under weaker credibility requirements .

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1993-02.pdf
File Function: Fisrt version / Primera version, 1993
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1993-02.

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Length: 40 pages
Date of creation: May 1993
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1993-02
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  1. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, vol. 82(3), pages 600-614, June.
  2. Mirman, L.J. & Samuelson, L. & Urbano, A., 1989. "Monopoly Experimentation," Papers 8-89-7, Pennsylvania State - Department of Economics.
    • Mirman, Leonard J & Samuelson, Larry & Urbano, Amparo, 1993. "Monopoly Experimentation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 549-63, August.
  3. Chakravorti, Bhaskar, 1993. "Sequential rationality, implementation and pre-play communication," Journal of Mathematical Economics, Elsevier, vol. 22(3), pages 265-294.
  4. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
  5. Sandeep Baliga & Tomas Sjostrom, 1996. "Interactive Implementation," Harvard Institute of Economic Research Working Papers 1751, Harvard - Institute of Economic Research.
  6. Matthew O. Jackson, 1990. "Undominated Nash Implementation in Bounded Mechanisms," Discussion Papers 966, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Baliga, S. & Corchon, L.C. & Sjostrom, T., 1995. "The Theory of Implemetation when the Planner is a PLayer," Cambridge Working Papers in Economics 9512, Faculty of Economics, University of Cambridge.
  8. Jackson, Matthew O. & Palfrey, Thomas R., 2001. "Voluntary Implementation," Journal of Economic Theory, Elsevier, vol. 98(1), pages 1-25, May.
  9. Debraj Ray & Kaoru Ueda, 1996. "Egalitarianism and Incentives," Boston University - Institute for Economic Development 73, Boston University, Institute for Economic Development.
  10. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, vol. 45(1), pages 128-144, June.
  11. Marhuenda, F, 1995. "Distribution of Income and Aggregation of Demand," Econometrica, Econometric Society, vol. 63(3), pages 647-66, May.
  12. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  13. Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
  14. Antonio Villar Notario & Carmen Herrero Blanco, 1990. "Vector mappings with diagonal images," Working Papers. Serie AD 1990-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  15. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
  16. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, vol. 59(4), pages 997-1021, July.
  17. L. Hurwicz, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 217-225.
  18. Chakravorti, Bhaskar, 1992. "Efficiency and Mechanisms with No Regret," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 45-59, February.
  19. William Thomson, 1984. "The Manipulability of Resource Allocation Mechanisms," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 447-460.
  20. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
  21. Thomas R. Palfrey & Sanjay Srivastava, 1987. "On Bayesian Implementable Allocations," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 193-208.
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