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Efficient Investments in the Implementation Problem

Kentaro Tomoeda ()

No 54, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency. To do so, we extend the standard implementation problem to include endogenous ex ante and ex post investments. In our problem, the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism. Our main theorem shows that a novel condition commitment-proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame-perfect equilibria. The availability of ex post investments is crucial in our model: there is no social choice rule that is efficient and implementable in subgame-perfect equilibria without ex post investments. We also show that our positive result continues to hold in the incomplete information setting.

Keywords: investment efficiency; full implementation; mechanism design; ex ante investment (search for similar items in EconPapers)
JEL-codes: D44 D82 D47 C78 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
Date: 2018-12-18
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https://www.uts.edu.au/sites/default/files/2019-03/investment_commitment.pdf (application/pdf)

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