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Mechanism Design with Costly Verification and Limited Punishments, Third Version

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  • Yunan Li

    (Department of Economics and Finance, City University of Hong Kong)

Abstract

A principal has to allocate a good among a number of agents, each of whom values the good. Each agent has private information about the principal's payoff if he receives the good. There are no monetary transfers. The principal can inspect agents' reports at a cost and penalize them, but the punishments are limited. I characterize an optimal mechanism featuring two thresholds. Agents whose values are below the lower threshold and above the upper threshold are pooled, respectively. If the number of agents is small, then the pooling area at the top of value distribution disappears. If the number of agents is large, then the two pooling areas meet and the optimal mechanism can be implemented via a shortlisting procedure.

Suggested Citation

  • Yunan Li, 2017. "Mechanism Design with Costly Verification and Limited Punishments, Third Version," PIER Working Paper Archive 16-009, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Sep 2017.
    • Handle: RePEc:pen:papers:16-009
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    References listed on IDEAS

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    Cited by:

    1. Li, Yunan, 2019. "Efficient mechanisms with information acquisition," Journal of Economic Theory, Elsevier, vol. 182(C), pages 279-328.
    2. Yunan Li, 2017. "Efficient Mechanisms with Information Acquisition," PIER Working Paper Archive 16-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 23 Jun 2017.
    3. Markos Epitropou & Rakesh Vohra, 2019. "Dynamic Mechanisms with Verification," PIER Working Paper Archive 19-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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    More about this item

    Keywords

    Mechanism Design; Costly Verification; Limited Punishments;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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