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 by an Informed Principal - Pure-Strategy Equilibria for a Common Value Model

We present a common value mechanism design model for an informed principal where only the principal has private information, but her one-dimensional private information is allowed to be distributed according to any probability measure. For this model we characterize the set of pure-strategy perfect Bayesian equilibria. Furthermore, we present several equilibrium refinements based on the concept of equilibrium domination to take account of beliefs off the equilibrium path. Finally, we demonstrate that the extension of the strong solution of Myerson (Econometrica, 1983) to our model is supported as an equilibrium satisfying all refinement criteria presented (in case a strong solution exists).equilibrium refinement, infinite signaling game, informed principal, mechanism design, perfect Bayesian equilibrium, principle of inscrutability, revelation principle, strong solution

Neutral optima in informed principal problems with common values

Working paperIn a class of informed principal problems with common values often used in applications we define a particular mechanism which we call the assured allocation. It is always undominated, i.e. efficient among the different types of the principal. We show it is a perfect Bayesian equilibrium allocation of the three-stage game studied in Maskin and Tirole (1992) that coincides with the Rothschild-Stiglitz-Wilson allocation when the latter is undominated. Under familiar conditions on hazard rates we show that the assured allocation is a neutral optimum in the sense of Myerson (1983)

Barter, Liquidity and Market Segmentation

This paper explores the private and social benefits from barter exchange in a monetized economy. We first prove a no-trade theorem regarding the ability of firms with double-coincidences-of-wants to negotiate improvements in trade among themselves relative to the market outcomes. We then demonstrate that in the presence of liquidity shocks, introducing a non-monetary exchange avoids this limitation and enhances trade by (1) generating liquidity and (2) by segmenting the market place into low-demand and high-demand customers in a manner which is impossible with pure monetary exchange. We provide comparative statics illustrating the importance of each effect and relevant extensions.barter, exchange

Implementation in Bayesian Equilibrium: The Multiple Equilibrium Problem in Mechanism Design

This paper surveys the literature on implementation in Bayesian Equilibrium

Information in Mechanism Design

We survey the recent literature on the role of information for mechanism design. We specifically consider the role of endogeneity of and robustness to private information in mechanism design. We view information acquisition of and robustness to private information as two distinct but related aspects of information management important in many design settings. We review the existing literature and point out directions for additional future work.Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management

Implementation Theory

This surveys the branch of implementation theory initiated by Maskin (1977). Results for both complete and incomplete information environments are covered

Informed Principal, Moral Hazard, and Limited Liability

I consider a moral hazard problem with risk neutral parties, limited liability, and an informed principal. The contractible outcome is correlated to both the principal's private information and the agent's hidden action. In contrast to a model without a privately informed principal or without limited liability, I show that the first-best payoff cannot be implemented by any equilibrium mechanism. Furthermore, limited liability precludes the existence of equilibrium refinements such as (Strongly) Neologism proofness

The Disparate Effects of Strategic Manipulation

When consequential decisions are informed by algorithmic input, individuals may feel compelled to alter their behavior in order to gain a system's approval. Models of agent responsiveness, termed "strategic manipulation," analyze the interaction between a learner and agents in a world where all agents are equally able to manipulate their features in an attempt to "trick" a published classifier. In cases of real world classification, however, an agent's ability to adapt to an algorithm is not simply a function of her personal interest in receiving a positive classification, but is bound up in a complex web of social factors that affect her ability to pursue certain action responses. In this paper, we adapt models of strategic manipulation to capture dynamics that may arise in a setting of social inequality wherein candidate groups face different costs to manipulation. We find that whenever one group's costs are higher than the other's, the learner's equilibrium strategy exhibits an inequality-reinforcing phenomenon wherein the learner erroneously admits some members of the advantaged group, while erroneously excluding some members of the disadvantaged group. We also consider the effects of interventions in which a learner subsidizes members of the disadvantaged group, lowering their costs in order to improve her own classification performance. Here we encounter a paradoxical result: there exist cases in which providing a subsidy improves only the learner's utility while actually making both candidate groups worse-off--even the group receiving the subsidy. Our results reveal the potentially adverse social ramifications of deploying tools that attempt to evaluate an individual's "quality" when agents' capacities to adaptively respond differ.Comment: 29 pages, 4 figure