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Protocol Design and (De-)Centralization

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  • Grüner, Hans Peter

Abstract

Should privately informed agents with diverging interests act independently or should they commit to a mechanism? This paper analyzes different communication and decision protocols when communication involves delay. It studies under which conditions agents should (i) choose their actions immediately and non-cooperatively, (ii) communicate and act independently or (iii) contract before receiving their information. Well informed agents with similar preferences do not contract or communicate. Communication is desirable when preferences are similar and individual signals are of intermediate quality. Contracting on a Bayesian mechanism only pays when agents' preferences are not too strongly correlated, when information quality is high, and when the cost of delay is sufficiently low. When the correlation is negative and large enough, the optimal contract does not involve any communication.

Suggested Citation

  • Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6357
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    More about this item

    Keywords

    Decentralization; Eu; Mechanism design; Protocol design; Turkey;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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