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Reciprocal Relationships and Mechanism Design

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  • Celik, Gorkem
  • Peters, Michael

Abstract

We study an incomplete information game in which players are involved in a reciprocal relationship that allows them to coordinate their actions by contracting among themselves. We model this as a competing mechanism game in which players have the ability to write contracts. We characterize the set of outcome functions that can be supported as equilibrium in this enhanced game. We use our characterization to show that the set of supportable outcomes is bigger than the set of outcomes supported by a centralized mechanism designer who can offer mechanisms in which all players participate. The difference is that the contracting game makes it possible for players to convey partial information about their type at the time they offer contracts.

Suggested Citation

  • Celik, Gorkem & Peters, Michael, 2011. "Reciprocal Relationships and Mechanism Design," Microeconomics.ca working papers gorkem_celik-2011-19, Vancouver School of Economics, revised 01 Aug 2011.
  • Handle: RePEc:ubc:pmicro:gorkem_celik-2011-19
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    References listed on IDEAS

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    Cited by:

    1. 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, pages 11-36.
    2. Galperti, Simone, 2015. "Common agency with informed principals: Menus and signals," Journal of Economic Theory, Elsevier, pages 648-667.
    3. Charlot, Philippe & Darné, Olivier & Moussa, Zakaria, 2016. "Commodity returns co-movements: Fundamentals or “style” effect?," Journal of International Money and Finance, Elsevier, pages 130-160.
    4. Saint-Paul, Gilles, 2015. "Can active labor market policy be counter-productive?," Research in Economics, Elsevier, vol. 69(1), pages 26-36.
    5. Forges, Françoise & Horst, Ulrich, 2017. "Sender-Receiver Games with Cooperation," Rationality and Competition Discussion Paper Series 17, CRC TRR 190 Rationality and Competition.
    6. Simone Galperti, 2011. "Common Agency with Informed Principals: Menus and Signals," Discussion Papers 1541, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Koessler, Frédéric & Lambert-Mogiliansky, Ariane, 2013. "Committing to transparency to resist corruption," Journal of Development Economics, Elsevier, pages 117-126.
    8. 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, pages 11-36.

    More about this item

    JEL classification:

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

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