Implementation with securities

Rahul Deb and Debasis Mishra

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: We study mechanism design in a setting where agents know their types but are uncertain about the utility from any alternative. The lnal realized utility of each agent is observed by the principal and can be contracted upon. In such environments, the principal is not restricted to using only transfers but can employ security contracts which determine each agent's payoff as a function of their realized utility and the profile of announced types. We show that using security contracts instead of transfers expands the set of (dominant strategy) implementable social choice functions. Our main result is that in a lnite type space, every social choice function that can be implemented using a security contract can also be implemented using a royalty contract. Royalty contracts are simpler and commonly used security contracts, in which agents initially pay a transfer and keep a fraction of their realized utility. We also identify a condition called acyclicity that is necessary and suncient for implementation in these environments.

Keywords: dominant strategy implementation; acyclicity; security contracts; royalty contracts; cycle monotonicity (search for similar items in EconPapers)
JEL-codes: D44 D47 D71 D82 D86 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Implementation with Securities (2013)
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