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From equals to despots: The dynamics of repeated decision making in partnerships with private information

Vinicius Carrasco, William Fuchs and Satoshi Fukuda

Journal of Economic Theory, 2019, vol. 182, issue C, 402-432

Abstract: This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic “regime shifts.”

Keywords: Repeated collective decision making; Dictatorial mechanism; Dynamic Bayesian mechanism design; Renegotiation-proofness; Regime shifts (search for similar items in EconPapers)
JEL-codes: D82 D86 D70 (search for similar items in EconPapers)
Date: 2019
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