Uncertainty and robustness of surplus extraction

Giuseppe Lopomo, Luca Rigotti and Chris Shannon

Journal of Economic Theory, 2022, vol. 199, issue C

Abstract: This paper studies a robust version of the classic surplus extraction problem, in which the designer knows only that the beliefs of each type belong to some set, and designs mechanisms that are suitable for all possible beliefs in that set. We derive necessary and sufficient conditions for full extraction in this setting, and show that these are natural set-valued analogues of the classic convex independence condition identified by Crémer and McLean (1985, 1988). We show that full extraction is neither generically possible nor generically impossible, in contrast to the standard setting in which full extraction is generic. When full extraction fails, we show that natural additional conditions can restrict both the nature of the contracts a designer can offer and the surplus the designer can obtain.

Keywords: Mechanism design; Robustness; Ambiguity; Surplus extraction; Knightian uncertainty (search for similar items in EconPapers)
JEL-codes: C6 C7 D8 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Uncertainty and Robustness of Surplus Extraction (2021)
Working Paper: Uncertainty and Robustness of Surplus Extraction (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:199:y:2022:i:c:s0022053120300831

DOI: 10.1016/j.jet.2020.105088

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