The timing of constraints and the existence of efficient incentive compatible mechanisms
Kosmopoulou, Georgia
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Permalink
https://hdl.handle.net/2142/20100
Description
Title
The timing of constraints and the existence of efficient incentive compatible mechanisms
Author(s)
Kosmopoulou, Georgia
Issue Date
1996
Doctoral Committee Chair(s)
Williams, Steven R.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Theory
Language
eng
Abstract
Agents who have private information may misrepresent it, to manipulate a system of rules in their favor. Loss in efficiency can be an unfortunate consequence of this strategic behavior. A common problem in mechanism design concerns the selection of monetary transfers among economic agents to promote incentive compatibility and efficiency. My research focuses on studying certain aspects of the effect of incomplete information upon economic efficiency.
Part of my dissertation concerns the impact of the form of the budget and individual rationality constraints upon efficiency. This impact is related to the form of private information among individuals. In a Bayesian model of group decision-making, dependence among agents' types has been shown to have a beneficial effect on the design of efficient mechanisms. The present work, however, suggests that efficiency depends as much upon the relaxation of budget and individual rationality constraints as it does upon dependence in the private information. With the appropriate timing of these constraints, the nonexistence results in the case of independence are robust to the introduction of a small amount of dependence among types, in private and nonprivate value models. This analysis supports the continued use of the simplifying assumption of independence.
The rest of my dissertation is a fundamental investigation into how the pursuit of self-interest is modeled in situations in which individuals have private information. There are two ways of predicting behavior in such cases: through the dominant strategy solution concept or the Bayesian solution concept. An equivalence result is proved here associating Bayesian with ex post individually rational, dominant strategy mechanisms. These dominant strategy mechanisms do not require the information structure to be common knowledge among agents. Furthermore, the existence of efficient Bayesian mechanisms can be investigated using a single member of this class of dominant strategy mechanisms. This equivalence result is employed in an effort to identify, in a simple way, the source of the diversity in the efficiency limiting results, in a context of a private and a public good problem. This analysis identifies excludability in consumption as the key element determining the potential for efficiency as the number of agents increases.
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