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On the Equivalence of Bilateral and Collective Mechanism Design

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  • Yu Chen

    (University of Graz)

Abstract

We explore the theoretical justification of adopting bilateral mechanism design, which is a simplification of canonical collective mechanism design, in general multi-agency contracting games under Bayesian Nash equilibrium. We establish interim payoff equivalence between collective and bilateral mechanism design in the quasi-separable environment, in which interdependent valuations and correlated types are allowed. We employ interim payoff equivalence to further show the equivalence between optimal bilateral and collective mechanism design, when the principal s payoff exhibits certain relations with separate agents payoffs. Our analysis can also incorporate individual rationality and budget balance constraints and the asymptotic equivalence.

Suggested Citation

  • Yu Chen, 2017. "On the Equivalence of Bilateral and Collective Mechanism Design," Graz Economics Papers 2017-01, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2017-01
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    References listed on IDEAS

    as
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    8. Claudio Mezzetti, 2004. "Mechanism Design with Interdependent Valuations: Efficiency," Econometrica, Econometric Society, vol. 72(5), pages 1617-1626, September.
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    More about this item

    Keywords

    Bayesian Nash equilibrium; bilateral mechanism; collective mechanism; interim payoff equivalence; quasi-separable environment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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