Protocol Design and (De-)Centralization

Grüner, Hans Peter

No 6357, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Decentralization; Eu; Mechanism design; Protocol design; Turkey (search for similar items in EconPapers)
JEL-codes: D23 D71 D74 D86 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-cwa
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