CIRJE-F-376 | "Mechanism Design with Side Payments: Individual Rationality and Iterative Dominance" |
Author Name | Matsushima, Hitoshi |
Date | September 2005 |
Full Paper | PDF file@ |
Remarks | Subsequently published in Journal of Economic Theory (regular article) . |
Abstract |
In this paper, we investigate the collective decision problem with incomplete
information and side payments. We show that a direct mechanism associated with the
social choice function that satisfies budget balancing, incentive compatibility, and
interim individual rationality exists for generic prior distributions. We consider the
possibility that a risk-averse principal extracts full surplus in agency problems with
adverse selection. Additionally, with regard to generic prior distributions, we show that
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 three times iteratively undominated message rule profile. |