(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts

International climate protection investments (Joint Implementation and Clean Development Mechanism projects) are burdened with problems of contract enforcement, which prevent the realisation of efficiency gains associated with these investments. The paper analyses this problem from the perspective of non-cooperative game theory and proposes two different solutions to the co-operation problem. The first analyses the potential role of national environmental authorities in facilitating credible commitment of the project host operating under its jurisdiction. It is argued that the threat of punishing the project host if he breaches the contract may serve this purpose. The effective level of punishment is derived. The second option involves strategic delegation of contract implementation to a third party operating under the same jurisdiction as the project host. Again, the paper explores the conditions that ensure incentive-compatibility. Both options are based on the idea that the project sponsor may commit himself credibly by becoming a Stackelberg leader.Joint Implementation, Clean Development Mechanism, climate protection, international environmental agreements, international investments, contract enforcement, co-operation, incentive compatibility

A Faithful Distributed Implementation of Dual Decomposition and Average Consensus Algorithms

We consider large scale cost allocation problems and consensus seeking problems for multiple agents, in which agents are suggested to collaborate in a distributed algorithm to find a solution. If agents are strategic to minimize their own individual cost rather than the global social cost, they are endowed with an incentive not to follow the intended algorithm, unless the tax/subsidy mechanism is carefully designed. Inspired by the classical Vickrey-Clarke-Groves mechanism and more recent algorithmic mechanism design theory, we propose a tax mechanism that incentivises agents to faithfully implement the intended algorithm. In particular, a new notion of asymptotic incentive compatibility is introduced to characterize a desirable property of such class of mechanisms. The proposed class of tax mechanisms provides a sequence of mechanisms that gives agents a diminishing incentive to deviate from suggested algorithm.Comment: 8 page

Mechanism design for single leader Stackelberg problems and application to procurement auction design

In this paper, we focus on mechanism design for single leader Stackelberg problems, which are a special case of hierarchical decision making problems in which a distinguished agent, known as the leader, makes the first move and this action is followed by the actions of the remaining agents, which are known as the followers. These problems are also known as single leader rest follower (SLRF) problems. There are many examples of such problems in the areas of electronic commerce, supply chain management, manufacturing systems, distributed computing, transportation networks, and multiagent systems. The game induced among the agents for these problems is a Bayesian Stackelberg game, which is more general than a Bayesian game. For this reason, classical mechanism design, which is based on Bayesian games, cannot be applied as is for solving SLRF mechanism design problems. In this paper, we extend classical mechanism design theory to the specific setting of SLRF problems. As a significant application of the theory developed, we explore two examples from the domain of electronic commerce-first-price and second-price electronic procurement auctions with reserve prices. Using an SLRF model for these auctions, we derive certain key results using the SLRF mechanism design framework developed in this paper. The theory developed has many promising applications in modeling and solving emerging game theoretic problems in engineering

Transforming Energy Networks via Peer to Peer Energy Trading: Potential of Game Theoretic Approaches

Peer-to-peer (P2P) energy trading has emerged as a next-generation energy management mechanism for the smart grid that enables each prosumer of the network to participate in energy trading with one another and the grid. This poses a significant challenge in terms of modeling the decision-making process of each participant with conflicting interest and motivating prosumers to participate in energy trading and to cooperate, if necessary, for achieving different energy management goals. Therefore, such decision-making process needs to be built on solid mathematical and signal processing tools that can ensure an efficient operation of the smart grid. This paper provides an overview of the use of game theoretic approaches for P2P energy trading as a feasible and effective means of energy management. As such, we discuss various games and auction theoretic approaches by following a systematic classification to provide information on the importance of game theory for smart energy research. Then, the paper focuses on the P2P energy trading describing its key features and giving an introduction to an existing P2P testbed. Further, the paper zooms into the detail of some specific game and auction theoretic models that have recently been used in P2P energy trading and discusses some important finding of these schemes.Comment: 38 pages, single column, double spac

Endogenous Mechanisms and Nash Equilibrium in Competitive Contracting

We model strategic competition in a market with asymmetric information as a noncooperative game in which each firm competes for the business of a buyer of unknown type by offering the buyer a catalog of products and prices. The timing in our model is Stackelberg: in the first stage, given the distribution of buyer types known to all firms and the deducible, type-dependent best responses of the agent, firms simultaneously and noncooperatively choose their catalog offers. In the second stage the buyer, knowing his type, chooses a single firm and product-price pair from that firm's catalog. By backward induction, this Stackelberg game with asymmetric information reduces to a game over catalogs with payoff indeterminacies. In particular, due to ties within catalogs and/or across catalogs, corresponding to any catalog profile offered by firms there may be multiple possible expected firm payoffs, all consistent with the rational optimizing behavior of the agent for each of his types. The resolution of these indeterminacies depends on the tie-breaking mechanism which emerges in the market. Because each tie-breaking mechanism induces a particular game over catalogs, a reasonable candidate would be a tie-breaking mechanism which supports a Nash equilibrium in the corresponding catalog game. We call such a mechanism an endogenous Nash mechanism. The fundamental question we address in this paper is, does there exist an endogenous Nash mechanism - and therefore, does there exist a Nash equilibrium for the catalog game? We show under fairly mild conditions on primitives that catalog games naturally possess tie-breaking mechanisms which support Nash equilibria.common agency with adverse selection, endogenous contracting mechanisms, discontinuous games, catalog games, existence of Nash equilibrium, competitive contracting

Optimal Auction Design with Risk Aversion and Correlated Information

In this paper, we develop a general auction model in which buyers and seller are risk averse and private information is multidimensional and correlated, and in this setting we examine the problem of optimal auction design. In particular, we consider the problem faced by someone who has an object to sell but who does not know how much prospective buyers might be willing to pay, and allowing for risk aversion and correlated information on the part of buyers, we demonstrate the existence of an auction procedure that yields the risk averse seller the highest expected utility among all the auction procedures that are rational and Bayesian incentive compatible.

Incentive Mechanisms for Participatory Sensing: Survey and Research Challenges

Participatory sensing is a powerful paradigm which takes advantage of smartphones to collect and analyze data beyond the scale of what was previously possible. Given that participatory sensing systems rely completely on the users' willingness to submit up-to-date and accurate information, it is paramount to effectively incentivize users' active and reliable participation. In this paper, we survey existing literature on incentive mechanisms for participatory sensing systems. In particular, we present a taxonomy of existing incentive mechanisms for participatory sensing systems, which are subsequently discussed in depth by comparing and contrasting different approaches. Finally, we discuss an agenda of open research challenges in incentivizing users in participatory sensing.Comment: Updated version, 4/25/201