Role of Honesty in Full Implementation ( Revised version of CARF-F-015(2004) )

Hitoshi Matsushima

No CARF-F-062, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper introduces a new concept for full implementation that takes into account agents' preferences for understanding how the "process" works. We assume that the agents have an intrinsic preference for honesty in the sense that they dislike the idea of lying when it does not influence their welfare but instead goes against the intention of the principal. We show that the presence of such preferences functions very effectively in eliminating unwanted equilibria from the practical perspectives, even if the degree of preference for honesty is small. The mechanisms designed are detail-free and involve only small fines.

Pages: 21 pages
Date: 2006-03
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf062

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