Veto Constraint in Mechanism Design: Inefficiency with Correlated Types

2009 ◽  
Vol 1 (1) ◽  
pp. 182-206 ◽  
Author(s):  
Olivier Compte ◽  
Philippe Jehiel

We consider bargaining problems in which parties have access to outside options, the size of the pie is commonly known and each party privately knows the realization of her outside option. We allow for correlations in the distributions of outside options. Parties have a veto right, which allows them to obtain at least their outside option payoff in any event. Besides, agents can receive no subsidy ex post. We show that inefficiencies are inevitable whatever the exact form of correlation, as long as private information is dispersed. We also illustrate how veto constraints differ from ex post participation constraints. (JEL C78, D82)

2014 ◽  
Vol 6 (3) ◽  
pp. 106-135 ◽  
Author(s):  
Alberto Iozzi ◽  
Tommaso Valletti

We study a set of bilateral Nash bargaining problems between an upstream input supplier and several differentiated but competing retailers. If one bilateral bargain fails, the supplier can sell to the other retailers. We show that, in a disagreement, the other retailers' behavior has a dramatic impact on the supplier's outside options and, therefore, on input prices and welfare. We revisit the countervailing buyer power hypothesis and obtain results in stark contrast with previous findings, depending on the type of outside option. Our results apply, more generally, to the literature that incorporates negotiated input prices using bilateral Nash bargaining. (JEL C72, C78, D43, L13, L14, L81)


Author(s):  
Boaz Zik

Abstract The current literature on mechanism design in models with social preferences discusses social-preference-robust mechanisms, i.e., mechanisms that are implementable in any environment with social preferences. The literature also discusses payoff-information-robust mechanisms, i.e., mechanisms that are implementable for any belief and higher-order beliefs of the agents about the payoff types of the other agents. In the present paper, I address the question of whether deterministic mechanisms that are robust in both of these dimensions exist. I consider environments where each agent holds private information about his personal payoff and about the existence and extent of his social preferences. In such environments, a mechanism is robust in both dimensions only if it is ex-post implementable, i.e., only if incentive compatibility holds for every realization of payoff signals and for every realization of social preferences. I show that ex-post implementation of deterministic mechanisms is impossible in such environments; i.e., deterministic mechanisms that are both social-preference-robust and payoff-information-robust do not exist.


Author(s):  
Pasha Andreyanov ◽  
Tomasz Sadzik

Abstract In this article, we provide mechanisms for exchange economies with private information and interdependent values, which are ex post individually rational, incentive compatible, generate budget surplus, and are ex post nearly efficient, with many agents. Our framework is entirely prior-free, and we make no symmetry restrictions. The mechanisms can be implemented using a novel discriminatory conditional double auction, without knowledge of information structure or utility functions. We also show that no other mechanism satisfying the constraints can generate inefficiency of smaller order.


Author(s):  
Roman Inderst ◽  
Tommaso Valletti

Abstract This paper introduces a model of third-degree price discrimination where a seller's pricing power is constrained by buyers' outside options. Price uniformity performs more efficiently than discriminatory pricing, as uniform pricing allows weaker buyers to exploit the more attractive outside option of stronger buyers. This mechanism is markedly different from the mechanisms that are at work in case uniform pricing is imposed on an unconstrained monopolist.


2021 ◽  
Vol 16 (3) ◽  
pp. 1139-1194
Author(s):  
Yunan Li

A principal distributes an indivisible good to budget‐constrained agents when both valuation and budget are agents' private information. The principal can verify an agent's budget at a cost. The welfare‐maximizing mechanism can be implemented via a two‐stage scheme. First, agents report their budgets, receive cash transfers, and decide whether to enter a lottery over the good. Second, recipients of the good can sell it on a resale market but must pay a sales tax. Low‐budget agents receive a higher cash transfer, pay a lower price to enter the lottery, and face a higher sales tax. They are also randomly inspected.


2018 ◽  
Author(s):  
Jens David Ohlin

Although politicians and intelligence analysts have criticized Russian interference in the 2016 and 2018 elections, international lawyers seem to be at a loss for how to understand the particular harm posed by this interference. In addition to the hacking of email accounts and disclosure of private information, the most salient aspect of the interference was the use of social media platforms, including Twitter and Facebook, to sow division and heighten nativist tendencies within the electorate. Strictly speaking, the goal of the 2016 interference was to delegitimize a potential Clinton presidency or to help elect Donald Trump as president. But far more important was the method used to accomplish these goals: the impersonation of American citizens during participation in the political process. This latter development points to the real harm of election interference, which has less to do with sovereignty and more to do with the collective right of self- determination. Foreign interference is a violation of the membership rules for political decision-making, i.e., the idea that only members of a polity should participate in elections—not only with regard to voting but also with regard to financial contributions and other forms of electoral participation. Outsiders are free to express their opinions but covertly representing themselves as insiders constitutes a violation of these political norms, which are constitutive of the notion of self- determination, just as much as covertly funneling foreign money to one candidate. The only solution to this form of election interference is transparency, i.e., to expose such interventions for what they are: attempts by foreigners to make political statements while pretending to be Americans. This article ends by cataloguing the mistakes of the Obama Administration in failing to expose this interference in real time—which is the only way to nullify its insidious impact. Ex post investigations, prosecutions, and counter-measures designed to deter future misbehavior are all insufficient to nullify the impact of electoral interference. However, recent efforts by the Justice Department and the FBI, including a new policy codified in the US Attorneys Manual, and contemporaneous indictments of Russians for interference in the 2018 election, suggest that some government actors finally understand that transparency is the only solution to election interference.


Author(s):  
Hau Chan ◽  
Aris Filos-Ratsikas ◽  
Bo Li ◽  
Minming Li ◽  
Chenhao Wang

The study of approximate mechanism design for facility location has been in the center of research at the intersection of artificial intelligence and economics for the last decade, largely due to its practical importance in various domains, such as social planning and clustering. At a high level, the goal is to select a number of locations on which to build a set of facilities, aiming to optimize some social objective based on the preferences of strategic agents, who might have incentives to misreport their private information. This paper presents a comprehensive survey of the significant progress that has been made since the introduction of the problem, highlighting all the different variants and methodologies, as well as the most interesting directions for future research.


2006 ◽  
Vol 96 (1) ◽  
pp. 422-434 ◽  
Author(s):  
Patrick W Schmitz

The property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives, while bargaining is ex post efficient. In contrast, transaction cost economics emphasizes ex post inefficiencies. In the present paper, a party may invest and acquire private information about the default payoff that it can realize on its own. Inefficient rent seeking can overturn prominent implications of the property rights theory. In particular, ownership by party B may be optimal, even though only the indispensable party A makes an investment decision.


Author(s):  
David M. Kreps

This chapter evaluates a more general attack on optimal contract and mechanism design stressing cases of adverse selection, which makes use of the revelation principle. One should be clear about the uses to which the revelation principle is put. It can be thought of as a statement about how actually to implement contracts. But it may be better to use it with greater circumspection as a tool of analysis for finding the limits of what outcomes can be implemented, without reference to how best to implement a particular outcome. In some contexts of direct revelation, there will be situations ex post where the party in the role of the government knows that it can obtain further gains from trade from one or more of the parties who participated. Meanwhile, in many applications of the revelation principle, the party in the role of mechanism designer must be able to commit credibly to no subsequent (re)negotiation once it learns the types of the parties with which it is dealing.


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