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Equilibrium Rejection of a Mechanism

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  • Celik, Gorkem
  • Peters, Michael

Abstract

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.

Suggested Citation

  • Celik, Gorkem & Peters, Michael, 2008. "Equilibrium Rejection of a Mechanism," Microeconomics.ca working papers gorkem_celik-2008-10, Vancouver School of Economics, revised 06 Aug 2008.
  • Handle: RePEc:ubc:pmicro:gorkem_celik-2008-10
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bouët, Antoine & Laborde Debucquet, David & Martimort, David, 2014. "Two-tier asymmetric information as a motive for trade, trade policies, and inefficient trade agreements:," IFPRI discussion papers 1383, International Food Policy Research Institute (IFPRI).
    2. Bruno Jullien & Jerome Pouyet & Wilfried Sand-Zantman, 2017. "An offer you can't refuse: early contracting with endogenous threat," RAND Journal of Economics, RAND Corporation, pages 733-748.
    3. Madhav S. Aney, 2012. "Conflict with Quitting Rights: A Mechanism Design Approach," Working Papers 18-2012, Singapore Management University, School of Economics.
    4. Françoise Forges & Ulrich Horst & Antoine Salomon, 2016. "Feasibility and individual rationality in two-person Bayesian games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(1), pages 11-36, March.
    5. Kim, Jin Yeub, 2017. "Interim third-party selection in bargaining," Games and Economic Behavior, Elsevier, vol. 102(C), pages 645-665.
    6. Gorkem Celik & Michael Peters, 2016. "Reciprocal relationships and mechanism design," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 374-411, February.
    7. Schneider, Johannes & Balzer, Benjamin, 2016. "Managing a Conflict," Annual Conference 2016 (Augsburg): Demographic Change 145686, Verein für Socialpolitik / German Economic Association.
    8. Forges, Françoise & Horst, Ulrich, 2017. "Sender-Receiver Games with Cooperation," Rationality and Competition Discussion Paper Series 17, CRC TRR 190 Rationality and Competition.

    More about this item

    Keywords

    Mechanism design; Default game; Cartel agreements;

    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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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