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Stochastic Mechanisms in Settings without Monetary Transfers: Regular Case

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  • Kovac, Eugen
  • Mylovanov, Tymofiy

Abstract

We study relative performance of stochastic and deterministic mechanisms in a principal-agent model with hidden information and no monetary transfers. We present an example in which stochastic mechanisms perform strictly better than deterministic ones and can implement any outcome arbitrarily close to the first-best. Nevertheless, under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agent's bias, the optimal mechanism is deterministic. We provide an explicit characterization of this mechanism.

Suggested Citation

  • Kovac, Eugen & Mylovanov, Tymofiy, 2006. "Stochastic Mechanisms in Settings without Monetary Transfers: Regular Case," Bonn Econ Discussion Papers 23/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:232006
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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