IDEAS home Printed from https://ideas.repec.org/p/cfi/fseres/cf464.html
   My bibliography  Save this paper

Mechanism Design with General Ex-Ante Investments (Revised version of F415 )

Author

Listed:
  • Hitoshi Matsushima

    (University of Tokyo)

  • Shunya Noda

    (University of British Columbia)

Abstract

We investigate the general mechanism design problems in which agents take ex-ante hidden actions (or investments) that influence state distribution. We show that the variety of action choices drastically shrinks the set of mechanisms that induce targeted actions in the sense that there is a one-to-one tradeoff between the dimensionality of action space and that of payment rules with which the targeted action profile is taken in an equilibrium. This result comprehends the observations made by previous works. When agents can take unilateral deviations to change the state distribution in various directions, we have equivalence properties with respect to ex-post payoffs, payments, and revenues. In particular, the pure-VCG mechanism, the simplest form of the canonical VCG mechanism, becomes the only mechanism that induces an efficient action profile. Contrarily, the popular pivot mechanism generically fails to induce efficient actions, even when the action space is one-dimensional.

Suggested Citation

  • Hitoshi Matsushima & Shunya Noda, 2019. "Mechanism Design with General Ex-Ante Investments (Revised version of F415 )," CARF F-Series CARF-F-464, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf464
    as

    Download full text from publisher

    File URL: https://www.carf.e.u-tokyo.ac.jp/admin/wp-content/uploads/2019/09/F464.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Obara Ichiro, 2008. "The Full Surplus Extraction Theorem with Hidden Actions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, March.
    2. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 315-334, April.
    3. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
    4. Krahmer, Daniel & Strausz, Roland, 2007. "VCG mechanisms and efficient ex ante investments with externalities," Economics Letters, Elsevier, vol. 94(2), pages 192-196, February.
    5. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    6. Matsushima, Hitoshi, 1989. "Efficiency in repeated games with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 48(2), pages 428-442, August.
    7. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.
    8. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    9. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    10. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    11. William P. Rogerson, 1992. "Contractual Solutions to the Hold-Up Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 777-793.
    12. Green, Jerry & Laffont, Jean-Jacques, 1977. "On the revelation of preferences for public goods," Journal of Public Economics, Elsevier, vol. 8(1), pages 79-93, August.
    13. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 1-18.
    14. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-438, March.
    15. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    16. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    17. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    18. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
    19. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
    20. Legros, Patrick & Matsushima, Hitoshi, 1991. "Efficiency in partnerships," Journal of Economic Theory, Elsevier, vol. 55(2), pages 296-322, December.
    21. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
    22. Susan Athey & Ilya Segal, 2013. "An Efficient Dynamic Mechanism," Econometrica, Econometric Society, vol. 81(6), pages 2463-2485, November.
    23. Claudio Mezzetti, 2004. "Mechanism Design with Interdependent Valuations: Efficiency," Econometrica, Econometric Society, vol. 72(5), pages 1617-1626, September.
    24. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
    25. Noda, Shunya, 2019. "Full surplus extraction and within-period ex post implementation in dynamic environments," Theoretical Economics, Econometric Society, vol. 14(1), January.
    26. Gabriel Carroll, 2015. "Robustness and Linear Contracts," American Economic Review, American Economic Association, vol. 105(2), pages 536-563, February.
    27. Shengwu Li, 2017. "Obviously Strategy-Proof Mechanisms," American Economic Review, American Economic Association, vol. 107(11), pages 3257-3287, November.
    28. Tan, Guofu, 1992. "Entry and R & D in procurement contracting," Journal of Economic Theory, Elsevier, vol. 58(1), pages 41-60, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Noda, Shunya, 2022. "Strategic experimentation with random serial dictatorship," Games and Economic Behavior, Elsevier, vol. 133(C), pages 115-125.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matsushima, Hitoshi & Noda, Shunya, 2023. "Mechanism design with general ex-ante investments," Journal of Mathematical Economics, Elsevier, vol. 106(C).
    2. Hitoshi Matsushima & Shunya Noda, 2017. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure-VCG," CIRJE F-Series CIRJE-F-1057, CIRJE, Faculty of Economics, University of Tokyo.
    3. Hitoshi Matsushima & Shunya Noda, 2017. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure-VCG (Revised version of F-386)," CARF F-Series CARF-F-415, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Hitoshi Matsushima & Shunya Noda, 2016. "Mechanism Design in Hidden Action and Hidden Information: Richness and Pure Groves," CIRJE F-Series CIRJE-F-1015, CIRJE, Faculty of Economics, University of Tokyo.
    5. Obara Ichiro, 2008. "The Full Surplus Extraction Theorem with Hidden Actions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, March.
    6. Miller, Nolan H. & Pratt, John W. & Zeckhauser, Richard J. & Johnson, Scott, 2007. "Mechanism design with multidimensional, continuous types and interdependent valuations," Journal of Economic Theory, Elsevier, vol. 136(1), pages 476-496, September.
    7. Liu, Heng, 2018. "Efficient dynamic mechanisms in environments with interdependent valuations: the role of contingent transfers," Theoretical Economics, Econometric Society, vol. 13(2), May.
    8. Johnson, Scott & Miller, Nolan & Pratt, John W. & Zeckhauser, Richard, 2003. "Efficient Design with Multidimensional, Continuous Types, and Interdependent Valuations," Working Paper Series rwp03-020, Harvard University, John F. Kennedy School of Government.
    9. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.
    10. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    11. Simon Loertscher & Leslie M. Marx, 2022. "Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration," American Economic Review, American Economic Association, vol. 112(2), pages 616-649, February.
    12. Sushil Bikhchandani & Ichiro Obara, 2017. "Mechanism design with information acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 783-812, March.
    13. Guo, Huiyi, 2019. "Mechanism design with ambiguous transfers: An analysis in finite dimensional naive type spaces," Journal of Economic Theory, Elsevier, vol. 183(C), pages 76-105.
    14. He, Wei & Li, Jiangtao, 2016. "Efficient dynamic mechanisms with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 97(C), pages 166-173.
    15. Lau, Stephanie, 2011. "Investment incentives in bilateral trading," Games and Economic Behavior, Elsevier, vol. 73(2), pages 538-552.
    16. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    17. Delacrétaz, David & Loertscher, Simon & Marx, Leslie M. & Wilkening, Tom, 2019. "Two-sided allocation problems, decomposability, and the impossibility of efficient trade," Journal of Economic Theory, Elsevier, vol. 179(C), pages 416-454.
    18. Kuzmics, Christoph & Steg, Jan-Henrik, 2017. "On public good provision mechanisms with dominant strategies and balanced budget," Journal of Economic Theory, Elsevier, vol. 170(C), pages 56-69.
    19. Song, Yangwei, 2018. "Efficient implementation with interdependent valuations and maxmin agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 693-726.
    20. Eric Maskin, 2004. "The Unity of Auction Theory: Paul Milgrom's Masterclass," Economics Working Papers 0044, Institute for Advanced Study, School of Social Science.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf464. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/catokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.