Informational Smallness and the Scope for Limiting Information Rents

For an incomplete-information model of public-good provision with interim participation constraints, we show that e¢ cient outcomes can be approximated, with approximately full surplus extraction, when there are many agents and each agent is informationally small. The result holds even if agents' payoffs cannot be unambiguously inferred from their beliefs, i.e., even if the so-called BDP property ("Beliefs Determine Preferences") of Neeman (2004) does not hold. The contrary result of Neeman (2004) rests on an implicit uniformity requirement that is incompatible with the notion that agents are informationally small because there are many other agents who have information about them.surplus extraction, mechanism design, BDP, informational smallness, correlated information

Selling \u27Money\u27 on EBay: a Field Study of Surplus Division

We study the division of trade surplus in a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. A random selection of buyers, the subjects of our experiment, make price offers according to the rules of eBay. Using a novel decomposition method, we infer the offered shares of trade surplus from the data and find that the average share proposed to the seller amounts to about $30 \%$. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and (iii) differences between East and West German subjects

Essays in mechanism design

The thesis studies some theoretical and applied problems in the mechanism design. In the first part we study how a group of agents could organize themselves to collect resources to introduce a common governance system which will enforce their trade agreements (contracts) with each other. Governance systems dealing with those issues usually have some costs of functioning (e.g., wages of enforcers, costs of design of codes and statutes, etc.) and they are also characterized by non-rivalry (i.e. an additional member does not reduce its availability to all others). Thus, studying their feasibility is equivalent to the problem of provision of (excludable) public goods. The first chapter analyzes this problem in the following setup: A large population of agents heterogeneous in strength endowments could match one-shot to trade with each other and there exists a status-quo asymmetric punishment system that imposes a punishment for cheating on weak agents but not on strong ones. There is an opportunity to build a punishment institution that will impose punishment for cheating independently of agents’ identities; however, it requires a collective investment into its capacity up-front. The main results of the analysis are the following: (i) the rate of cheating is always positive in contracts subject to asymmetric punishment and it is zero in contracts subject to impartial punishment, i.e. if the latter were not costly, it would always be socially beneficial to have only a symmetric governance system; (ii) sometimes strong agents receive rents under the asymmetric system, but sometimes it is the weak who benefit from it; (iii) there exists an equilibrium of the contribution game where all agents, independently of their strength, pay to the fixed cost of the symmetric system provided it excludes non-contributors from enforcement of their contracts with contributors, i.e. with the threat of exclusion of non-payers it is always possible to collect resources to cover costs of the efficient contract enforcement institution. In the second part of my thesis, which constitutes a joint paper with Martin Hellwig, we work out some details on whether under correlated information agents’ beliefs about the state of nature, which a third party may observe, are also fully informative about agents’ information on which their beliefs are conditioned. This property of agents’ beliefs plays a crucial role in the models of surplus extraction where agents' payoff parameters are privately known. Some recent literature (Heifetz and Neeman, Econometrica, 2006) demonstrated that when one goes beyond a standard model of information where agents derive their beliefs from a common prior given their payoff parameter and allows for a rich set of agents' beliefs, then, under a wide range of circumstances, agents’ beliefs could not reveal unequivocally their information, i.e., one could not learn agents' payoffs from their beliefs. Hence mechanisms exploiting uniqueness of payoffs to beliefs are not available anymore. We demonstrate the opposite result -- provided that agents’ beliefs are conditional distributions given their information (derived from common or private priors) and provided a mild restriction on the dimensionality of information variables is verified (specifically agents' own information should be of a lower dimension than dimensionality of their uncertainty about which they form beliefs). Then, in a wide range of circumstances, agents' information could be recovered from their beliefs. The result hinges upon Whitney Embedding Theorem and our treating of beliefs as being endogenously derived from agents' observations. In the third part of the thesis we deal with the following issue: In the existing mechanism design literature, different types of an agent, i.e., different states in which he has different sets of information, are usually treated as "redundant" if they have the same belief hierarchies about others' payoffs (i.e., beliefs about others' payoffs, beliefs about others' beliefs about everyone else’s payoff, etc.). Consequently most of the results in the existing literature have been shown for subsets of type spaces up to redundancy. Here we demonstrate that this approach is not always correct. If we model explicitly agents' redundant characteristics, there may exist social choice functions which are not implementable when those characteristics are not considered but which are implementable within a richer model taking into account redundant information. The reason for this is that treating some types as redundant is done by marginalizing beliefs about a richer set of uncertainty into beliefs about something of a lower dimension. This causes loss of information about correlations in a richer environment. These correlations are sometimes valuable for implementation as the mechanism designer could condition those agents' allocations

Selling Money on Ebay: A Field Study of Surplus Division

We study the division of trade surplus in a competitive market environment by conducting a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. Randomly arriving buyers, the subjects of our experiment, make price offers according to eBay rules. Using a novel decomposition method, we infer offered shares of trade surplus and find that the average share proposed to the seller amounts to 29%. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and (iii) behavioural differences between East and West German subjects

Informational smallness and the scope for limiting information rents

For an incomplete-information model of public-good provision with interim participation constraints, we show that efficient outcomes can be approximated, with approximately full surplus extraction, when there are many agents and each agent is informationally small. The result holds even if agents' payoffs cannot be unambiguously inferred from their beliefs, i.e., even if the so-called BDP property ("Beliefs Determine Preferences") of Neeman (2004) does not hold. The contrary result of Neeman (2004) rests on an implicit uniformity requirement that is incompatible with the notion that agents are informationally small because there are many other agents who have information about them

A Service of zbw The Theory of Incentive Mechanisms and the Samuelson Critique of a Contractarian Approach to Public-Good Provision *

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract The assessment that the implementation of efficient outcomes by means of "decentralized spontaneous solutions" is to be expected for private goods, but not for public goods has become part of the conventional wisdom of our discipline. This paper uses a mechanism design approach to clarify under which conditions this proposition is indeed correct. The main result is that the following has to be satisfied: There is a large number of individuals and only mechanisms which are robust, in the sense that they do not exploit assumptions about individuals' probabilistic beliefs, are considered