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Equilibrium Rejection of a Mechanism

  • Celik, Gorkem
  • Peters, Michael

We study a mechanism design problem in which players can take part in a mechanism to coordinate their actions in a default game. By refusing to participate in the mechanism, a player can revert to playing the default game non-cooperatively. We show with an example that some allocation rules are implementable only with mechanisms which will be rejected on the equilibrium path. In our construction, a refusal to participate conveys information about the types of the players. This information causes the default game to be played under different beliefs, and more importantly under different higher order beliefs, than the interim ones. We find a lower bound on all the implementable payoffs. We use this bound to establish a condition on the default game under which all the implementable outcomes are truthfully implementable, without the need to induce rejection of the mechanism.

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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number gorkem_celik-2008-10.

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Length: 0 pages
Date of creation: 06 Aug 2008
Date of revision: 06 Aug 2008
Handle: RePEc:ubc:pmicro:gorkem_celik-2008-10
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  2. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April.
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  7. Tan, Guofu & Yilankaya, Okan, 2004. "Ratifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs," Microeconomics.ca working papers tan-04-04-30-01-35-41, Vancouver School of Economics, revised 09 Jun 2006.
  8. Thomas Philippon & Vasiliki Skreta, 2012. "Optimal Interventions in Markets with Adverse Selection," American Economic Review, American Economic Association, vol. 102(1), pages 1-28, February.
  9. Laffont & Martimort, 1997. "Collusion under asymmetric information," Working Papers 152574, Institut National de la Recherche Agronomique, France.
  10. Yeon-Koo Che & Jinwoo Kim, 2005. "Robustly collusion-proof implementation," Discussion Papers 0506-12, Columbia University, Department of Economics.
  11. Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August.
  12. Kim, Jinwoo, 2008. "The value of an informed bidder in common value auctions," Journal of Economic Theory, Elsevier, vol. 143(1), pages 585-595, November.
  13. Alberto Motta, 2009. "Collusion and Selective Supervision," "Marco Fanno" Working Papers 0093, Dipartimento di Scienze Economiche "Marco Fanno".
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  15. Roger B. Myerson, 1981. "Mechanism Design by an Informed Principal," Discussion Papers 481, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  17. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, June.
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