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Mechanism Design with Communication Constraints

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  • Dilip Mookherjee
  • Masatoshi Tsumagari

Abstract

We consider mechanism design in which message sets are restricted owing to communication costs, preventing full revelation of information. A principal contracts with multiple agents each supplying a one-dimensional good at a privately known cost. We characterize optimal mechanisms subject to incentive and communication constraints, without imposing arbitrary restrictions on the number of communication rounds. We show that mechanisms that centralize production decisions are strictly dominated by those that decentralize decision-making authority to agents, and optimal communication mechanisms maximize information exchanged directly among agents. Conditions are provided for these to involve gradual release of information over multiple rounds either simultaneously or sequentially.

Suggested Citation

  • Dilip Mookherjee & Masatoshi Tsumagari, 2014. "Mechanism Design with Communication Constraints," Journal of Political Economy, University of Chicago Press, vol. 122(5), pages 1094-1129.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/676931
    DOI: 10.1086/676931
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    References listed on IDEAS

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    Cited by:

    1. Alexander Teytelboym & Shengwu Li & Scott Duke Kominers & Mohammad Akbarpour & Piotr Dworczak, 2021. "Discovering Auctions: Contributions of Paul Milgrom and Robert Wilson," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 709-750, July.
    2. Stefan Ambec & Michel Poitevin, 2016. "Decision-making in organizations: when to delegate and whom to delegate," Review of Economic Design, Springer;Society for Economic Design, vol. 20(2), pages 115-143, June.
    3. Schopohl, Simon, 2016. "Communication games with optional verification," Center for Mathematical Economics Working Papers 569, Center for Mathematical Economics, Bielefeld University.
    4. David Kempe, 2019. "Communication, Distortion, and Randomness in Metric Voting," Papers 1911.08129, arXiv.org, revised Nov 2019.
    5. Simon Schopohl, 2017. "Communication Games with Optional Verification," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01490688, HAL.
    6. Gorkem Celik, 2015. "Implementation by Gradual Revelation," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 271-296, June.
    7. Augenblick, Ned & Bodoh-Creed, Aaron, 2018. "To reveal or not to reveal: Privacy preferences and economic frictions," Games and Economic Behavior, Elsevier, vol. 110(C), pages 318-329.
    8. Ryuji Sano, 2021. "Dynamic communication mechanism design," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(1), pages 163-180, July.
    9. Ran Eilat & Kfir Eliaz Eliaz & Xiaosheng Mu, 2021. "Bayesian Privacy," Working Papers 2021-65, Princeton University. Economics Department..
    10. Eliaz, Kfir & Eilat, Ran & Mu, Xiaosheng, 2019. "Optimal Privacy-Constrained Mechanisms," CEPR Discussion Papers 13536, C.E.P.R. Discussion Papers.
    11. Simon Schopohl, 2017. "Communication Games with Optional Verification," Post-Print halshs-01490688, HAL.

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