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The expected externality mechanism in a level-k environment

Olga Gorelkina

International Journal of Game Theory, 2018, vol. 47, issue 1, No 4, 103-131

Abstract: Abstract Mechanism design theory strongly relies on the concept of Nash equilibrium. However, studies of experimental games show that Nash equilibria are rarely played and that subjects may be thinking only a finite number of iterations. We study one of the most influential benchmarks of mechanism design theory, the expected externality mechanism (D’Aspremont and Gerard-Varet, J Public Econ 11:25–45, 1979) in a finite-depth environment described by the Level-k model. While the original mechanism may fail to implement the efficient rule in this environment, it can be adjusted to restore efficiency.

Keywords: Expected externality; Externality mechanisms; Level-k; Bounded rationality (search for similar items in EconPapers)
JEL-codes: C72 D71 D82 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Working Paper: The Expected Externality Mechanism in a Level-k Environment (2015) Downloads
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DOI: 10.1007/s00182-017-0579-5

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