An undominated mechanism for a class of informed
principal problems with common values
An undominated mechanism for a class of informed
principal problems with common values
In a class of informed principal problems with common values, we define iteratively a particular allocation which we call the assured allocation. It is comparatively easy to calculate and straightforward to interpret. It always exists, is unique and continuous in the priors. It is undominated, i.e. efficient among the different types of the principal subject to the agent's interim participation constraint. It is a perfect Bayesian equilibrium of the three-stage game in Myerson [16] and Maskin and Tirole [14]. It dominates the RSW allocation as defined in Maskin and Tirole [14] and coincides with it when the latter is undominated. It is the unique neutral optimum as defined in Myerson [16] when there are only two types. When the assured allocation is separating, then it is a neutral optimum with three or more types. It is an equilibrium of a game of competition in a market with adverse selection.
mechanism design, informed principal, common values, neutral optimum
918-958
Balkenborg, Dieter
ebfef1fb-056e-4302-913e-2a0519f6eb7c
Makris, Miltiadis
966df0dc-9caf-409e-9cbe-f2a800cdffda
May 2015
Balkenborg, Dieter
ebfef1fb-056e-4302-913e-2a0519f6eb7c
Makris, Miltiadis
966df0dc-9caf-409e-9cbe-f2a800cdffda
Balkenborg, Dieter and Makris, Miltiadis
(2015)
An undominated mechanism for a class of informed
principal problems with common values.
Journal of Economic Theory, 157, .
(doi:10.1016/j.jet.2015.02.007).
Abstract
In a class of informed principal problems with common values, we define iteratively a particular allocation which we call the assured allocation. It is comparatively easy to calculate and straightforward to interpret. It always exists, is unique and continuous in the priors. It is undominated, i.e. efficient among the different types of the principal subject to the agent's interim participation constraint. It is a perfect Bayesian equilibrium of the three-stage game in Myerson [16] and Maskin and Tirole [14]. It dominates the RSW allocation as defined in Maskin and Tirole [14] and coincides with it when the latter is undominated. It is the unique neutral optimum as defined in Myerson [16] when there are only two types. When the assured allocation is separating, then it is a neutral optimum with three or more types. It is an equilibrium of a game of competition in a market with adverse selection.
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More information
Accepted/In Press date: 16 February 2015
e-pub ahead of print date: 27 February 2015
Published date: May 2015
Keywords:
mechanism design, informed principal, common values, neutral optimum
Organisations:
Economics
Identifiers
Local EPrints ID: 375196
URI: http://eprints.soton.ac.uk/id/eprint/375196
ISSN: 0022-0531
PURE UUID: 27f7c61f-110c-49fe-b773-9efadf613010
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Date deposited: 16 Mar 2015 13:37
Last modified: 14 Mar 2024 19:21
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Contributors
Author:
Dieter Balkenborg
Author:
Miltiadis Makris
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