Advances in Contract and Mechanism Design
Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Vasiliki Skreta, University of Texas-Austin and University College London
Coalition-Proof Mechanisms under Correlated Information
AbstractThe paper considers two types of mechanisms that are immune from coalitional manipulations: standard mechanisms and ambiguous mechanisms. In finite-dimensional type spaces, I characterize the set of all information structures under which every efficient allocation rule is implementable via an interim coalitional incentive compatible, interim individually rational and ex-post budget-balanced standard mechanism. The requirement of coalition-proofness reduces the scope of implementability under a non-negligible set of information structures. However, when ambiguous mechanisms are allowed and agents are maxmin expected utility maximizers, coalition-proof implementation can be obtained under all most all information structures. Thus, the paper sheds light on how coalition-proofness can be achieved by engineering ambiguity in mechanism rules.
Optimal Privacy-Constrained Mechanisms
AbstractModern information technologies make it possible to store, analyze and trade unprecedented amounts of detailed information about individuals. This has led to public discussions on whether individuals' privacy should be better protected by restricting the amount or the precision of information that is collected by commercial institutions on its participants. We contribute to this discussion by proposing a Bayesian approach to measure loss of privacy and applying it to the design of optimal mechanisms. Specifically, we define the loss of privacy associated with a mechanism as the difference between the designer's prior and posterior beliefs about an agent's type, where this difference is calculated using Kullback-Leibler divergence, and where the change in beliefs is triggered by actions taken by the agent in the mechanism. We consider both ex-post (for every realized type, the maximal difference in beliefs cannot exceed some threshold) and ex-ante (the expected difference in beliefs over all type realizations cannot exceed some threshold) measures of privacy loss. Using these notions we study the properties of optimal privacy-constrained mechanisms and the relation between welfare/profits and privacy levels.
Optimal Mechanism for The Sale of a Durable Good
AbstractWe characterize the revenue-maximizing Perfect Bayesian equilibrium for a seller who owns one unit of a durable good and interacts with a privately informed buyer over infinitely many periods. In each period, the seller can design a mechanism that determines the rules of trade. In the revenue- maximizing equilibrium, as long as a sale has not occurred, the seller chooses a mechanism that can be implemented as a posted price. Conceptually, this shows that the shape of the revenue maximizing mechanism to sell a durable good is the same under commitment or limited commitment. Methodolog- ically, the paper provides a recipe for problems of mechanism design with limited commitment. While in the case of commitment, subject to the truthtelling and participation constraints of the buyer, the seller’s problem is a decision problem, in the case of limited commitment, we show that the seller’s problem can be represented as an intrapersonal equilibrium, where the different “incarnations” of the seller represent the different beliefs he may have about the buyer’s valuation.
Optimal Project Design
AbstractThis paper considers an agency model with hidden action, in which an agent commits to a production technology before the principal offers a wage contract and makes an action recommendation. To extract rents, the agent designs the production technology such that no output is very informative of his action and more productive actions are progressively more expensive, thus aggravating the moral hazard problem. Our main result shows that the agent optimally designs a binary production technology (so that the project succeeds or fails), which makes the principal indifferent across all costly actions. In doing so, the agent extracts all rents.
- D8 - Information, Knowledge, and Uncertainty
- C7 - Game Theory and Bargaining Theory