Mechanism design with limited commitment: Markov environments

Laura Doval and Vasiliki Skreta

European Economic Review, 2024, vol. 167, issue C

Abstract: We provide a revelation principle for a class of single-agent dynamic mechanism design settings in which the agent’s private information evolves stochastically over time and the designer can only commit to short-term mechanisms. We restrict attention to Markov environments, in which (i) the agent’s type in period t+1 depends only on her period-t type and the period-t allocation, (ii) the designer’s and the agent’s payoffs are time-separable, and (iii) their period-t payoffs depend only on period-t type and the period-t allocation. We show all equilibrium payoffs can be attained with the designer using flow direct Blackwell mechanisms, which consist of a mapping from the agent’s current type report to posterior beliefs about the current type, and a mapping from these beliefs to allocations. Furthermore, all equilibrium payoffs can be attained with strategies in which the agent participates and truthfully reports her type, and the beliefs that result from the mechanism correspond to the designer’s equilibrium beliefs. This result greatly simplifies the search of optimal dynamic and sequentially rational mechanisms in dynamic mechanism design problems, which include dynamic Mirrlees and social insurance models.

Keywords: Mechanism design; Limited commitment; Revelation principle; Direct blackwell mechanisms; Information design; Short-term mechanisms; Markov environments; Dynamic mechanism design (search for similar items in EconPapers)
JEL-codes: D84 D86 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292124001065
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:167:y:2024:i:c:s0014292124001065

DOI: 10.1016/j.euroecorev.2024.104777

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().