On the Equivalence of Bilateral and Collective Mechanism Design

Yu Chen ()
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Yu Chen: University of Graz

No 2017-01, Graz Economics Papers from University of Graz, Department of Economics

Abstract: We explore the theoretical justification of adopting bilateral mechanism design, which is a simplification of canonical collective mechanism design, in general multi-agency contracting games under Bayesian Nash equilibrium. We establish interim payoff equivalence between collective and bilateral mechanism design in the quasi-separable environment, in which interdependent valuations and correlated types are allowed. We employ interim payoff equivalence to further show the equivalence between optimal bilateral and collective mechanism design, when the principal s payoff exhibits certain relations with separate agents payoffs. Our analysis can also incorporate individual rationality and budget balance constraints and the asymptotic equivalence.

Keywords: Bayesian Nash equilibrium; bilateral mechanism; collective mechanism; interim payoff equivalence; quasi-separable environment (search for similar items in EconPapers)
JEL-codes: C72 D82 D86 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
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