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Dynamic Mechanisms with Verification

Author

Listed:
  • Markos Epitropou

    (Department of Electrical and Systems Engineering, University of Pennsylvania)

  • Rakesh Vohra

    (Department of Economics, University of Pennsylvania)

Abstract

We consider a principal who allocates an indivisible object among a finite number of agents who arrive on-line, each of whom prefers to have the object than not. Each agent has access to private information about the principal's payoff if he receives the object. The decision to allocate the object to an agent must be made upon arrival of an agent and is irreversible. There are no monetary transfers but he principal can inspect agents' reports at a cost and punish them. A novelty of this paper is a reformulation of this dynamic problem as a compact linear program. Using the formulation we characterize the form of the optimal mechanism and reduce the dynamic version of the inspection problem with identical distributions to an instance of the secretary problem with one fewer secretary and a modified value distribution. This reduction also allows us to derive a prophet inequality for the dynamic version of the inspection problem.

Suggested Citation

  • 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.
    • Handle: RePEc:pen:papers:19-002
    as

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    File URL: https://economics.sas.upenn.edu/system/files/working-papers/19-002%20PIER%20Paper%20Submission.pdf
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    References listed on IDEAS

    as
    1. Border, Kim C, 1991. "Implementation of Reduced Form Auctions: A Geometric Approach," Econometrica, Econometric Society, vol. 59(4), pages 1175-1187, July.
    2. Elchanan Ben-Porath & Eddie Dekel & Barton L. Lipman, 2014. "Optimal Allocation with Costly Verification," American Economic Review, American Economic Association, vol. 104(12), pages 3779-3813, December.
    3. 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.
    4. Yunan Li, 2017. "Mechanism Design with Financially Constrained Agents and Costly Verification," PIER Working Paper Archive 17-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 18 Jan 2017.
    5. Tymofiy Mylovanov & Andriy Zapechelnyuk, 2017. "Optimal Allocation with Ex Post Verification and Limited Penalties," American Economic Review, American Economic Association, vol. 107(9), pages 2666-2694, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. William N. Caballero & Brian J. Lunday & Darryl K. Ahner, 2020. "Incentive Compatible Cost Sharing of a Coalition Initiative with Probabilistic Inspection and Penalties for Misrepresentation," Group Decision and Negotiation, Springer, vol. 29(6), pages 1021-1055, December.

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    More about this item

    Keywords

    Dynamic mechanism design; stopping problems; costly verification;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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