Probabilistic Verification in Mechanism Design

Ian Ball and Deniz Kattwinkel ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We introduce a model of probabilistic verification in a mechanism design setting. The principal verifies the agent's claims with statistical tests. The agent's probability of passing each test depends on his type. In our framework, the revelation principle holds. We characterize whether each type has an associated test that best screens out all the other types. In that case, the testing technology can be represented in a tractable reduced form. In a quasilinear environment, we solve for the revenue-maximizing mechanism by introducing a new expression for the virtual value that encodes the effect of testing.

Keywords: probabilistic verification; testing; revelation principle; ordering tests; evidence (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 54
Date: 2019-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_124

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