Yamashita, Takuro (2015) Implementation in Weakly Undominated Strategies, with Applications to Auctions and Bilateral Trade. Review of Economic Studies, 82 (3). pp. 1223-1246.

Abstract

We study the mechanism design problem of guaranteeing desirable performances whenever agents are rational in the sense of not playing weakly dominated strategies. We first provide an upper bound for the best performance we can guarantee among all feasible mechanisms. The bound is represented as the maximized value of the designer's objective subject to the inequality version of the standard envelope incentive conditions. We then prove the bound to be tight under certain conditions on the designer's prior over the agents' pay-off types in auction and bilateral-trade applications. In private-value auction and bilateral trade, the optimal mechanisms (a second-price auction and posted-price mechanism, respectively) satisfy dominant-strategy incentive compatibility, the classical notion of “robust” mechanisms. In an interdependent-value auction, we find that a second-price auction is optimal in revenue with interdependent values, which is neither dominant-strategy nor ex post incentive compatible, but satisfies the novel incentive compatibility introduced in this analysis.

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• Implementation in Weakly Undominated Strategies, with Applications to Auctions and Bilateral Trade. (deposited 16 Mar 2015 14:49)
  • Implementation in Weakly Undominated Strategies, with Applications to Auctions and Bilateral Trade. (deposited 04 May 2018 14:46) [Currently Displayed]