Joao Correia-da-Silva ()
Games and Economic Behavior, 2020, vol. 120, issue C, 434-457
In mechanism design problems where the outside option is a game, a version of the intuitive criterion restricts beliefs formed off-path in case of disagreement, and thus credible punishments for rejecting to participate. However, for virtual implementation, participation constraints can be relaxed by “designing” beliefs following disagreement using self-rejections: with a small probability that depends on the reported type profile, a mediator rejects the agreement in a way that is indistinguishable from rejection by an agent. Participation constraints can be further relaxed if the mediator makes private recommendations before the outside game is played. Any punishment (by all players except the rejector) such that each player-type is never asked to use an action he does not use in any Bayesian solution of the outside game is a credible punishment.
Keywords: Optimal punishment; Learning from disagreement; Intuitive criterion; Virtual implementation; Self-rejection (search for similar items in EconPapers)
JEL-codes: D82 C73 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:120:y:2020:i:c:p:434-457
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