Mechanism Design with Side Payments: Individual Rationality and Iterative Dominance

Hitoshi Matsushima

No CIRJE-F-185, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: We investigate the collective decision problem with incomplete information and side payments. We show that for generic prior distributions, there exists a direct mechanism associated with the social choice function that satisfies budget balancing, incentive compatibility, and interim individual rationality. We consider the possibility of a risk-averse principal's extracting the full surplus in agency problems with adverse selection. We also show that for generic prior distributions, there exists a modified direct mechanism associated with the virtual social choice function, which satisfies budget balancing and interim individual rationality, such that truth telling is the unique triple iteratively undominated message rule profile.

Pages: 33 pages
Date: 2002-12
New Economics Papers: this item is included in nep-cdm
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Related works:
Journal Article: Mechanism design with side payments: Individual rationality and iterative dominance (2007)
Working Paper: Mechanism Design with Side Payments: Individual Rationality and Iterative Dominance (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2002cf185

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