 Mechanism design with level-k types: Theory and an application to bilateral tradeTerri Kneeland Journal of Economic Theory, 2022, vol. 201, issue C Abstract: We develop necessary and sufficient conditions for level-k implementation that apply in independent private value environments. These conditions establish a set of level-k incentive constraints that are analogous to Bayesian incentive constraints. We show that in two special environments, the level-k incentive constraints collapse down to Bayesian incentive constraints. We then show, via a bilateral trade application, that this is not a general implication. Bilateral trade is ex post efficient under level-k implementation while it is not Bayesian implementable. We also address a robustness question concerning the common prior assumption embedded in level-k implementation by developing the concept of ex post level-k implementation. We develop necessary and sufficient conditions for ex post level-k implementation and show the relationship between ex post level-k and ex post implementation is analogous to the relationship between level-k and Bayesian implementation. Keywords: Mechanism design; Bounded rationality; Level-k thinking; Bilateral trade (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:201:y:2022:i:c:s0022053122000114 DOI: 10.1016/j.jet.2022.105421 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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