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Mechanism Design with Private Communication to Neutralize Fairness Constraints

Author

Listed:
  • Kohei Daido

    (Kwansei Gakuin University)

  • Tomoya Tajika

    (Nihon University)

Abstract

We study mechanism design under auditable fairness mandates that constrain only the formal rule while allowing off-record private communication between the principal and agents. We model a two-layer environment: a formal rule that maps agents' reports to outcomes and must satisfy the mandate, and private advice in which the principal can provide type-contingent recommendations. We construct a format-preserving randomized encryption (FPRE): the principal randomizes over symmetry-constrained rules and pairs each realization with ''password''-like advice. Under FPRE, any Bayesian incentive-compatible social choice function (SCF) is implementable by symmetric formal rules; if the SCF is dominant-strategy incentive-compatible (DSIC), the resulting mechanism achieves DSIC. In contrast, constraints that embed predictable structures-such as strict monotonicity and continuity-cannot be neutralized. We also present an approximate version: continuity is compatible with it. Our results highlight a regulatory-scope insight: if auditors can verify only the format of the rule, format-type fairness does not bind, whereas structure-revealing mandates (i.e., strict monotonicity and continuity) hinder the ''encryption'' that sustains obedience to private advice.

Suggested Citation

  • Kohei Daido & Tomoya Tajika, 2025. "Mechanism Design with Private Communication to Neutralize Fairness Constraints," Discussion Paper Series 299, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:299
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    References listed on IDEAS

    as
    1. Tian, Guoqiang, 1997. "Virtual implementation in incomplete information environments with infinite alternatives and types," Journal of Mathematical Economics, Elsevier, vol. 28(3), pages 313-339, October.
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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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