Direct implementation with evidence

Soumen Banerjee (), Yi-Chun Chen () and Yifei Sun ()
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Soumen Banerjee: CCBEF, Southwestern University of Finance and Economics
Yi-Chun Chen: Department of Economics and Risk Management Institute, National University of Singapore
Yifei Sun: Department of Economics, University of International Business and Economics

Theoretical Economics, 2024, vol. 19, issue 2

Abstract: We study full implementation with evidence in an environment with bounded utilities. We show that a social choice function is Nash implementable in a direct revelation mechanism if and only if it satisfies the measurability condition proposed by Ben-Porath and Lipman (2012). Building on a novel classification of lies according to their refutability with evidence, the mechanism requires only two agents, accounts for mixed-strategy equilibria and accommodates evidentiary costs. While monetary transfers are used, they are off the equilibrium and can be balanced with three or more agents. In a richer model of evidence due to Kartik and Tercieux (2012a), we establish pure-strategy implementation with two or more agents in a direct revelation mechanism. We also obtain a necessary and sufficient condition on the evidence structure for renegotiation-proof bilateral contracts, based on the classification of lies.

Keywords: Mechanism design; costly signaling; verifiable information; Nash implementation (search for similar items in EconPapers)
JEL-codes: C72 D02 D71 (search for similar items in EconPapers)
Date: 2024-05-13
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