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B01: Information aggregation and the role of transfers in mechanism design

Mechanism design provides methodological underpinnings for a very broad range of institutional design and regulation problems. The presence of monetary transfers is the main facilitator for modulating incentives. In contrast, we combine methods and insights from both mechanism design and social choice to solve optimality questions in settings without money. In addition, we contribute to other fundamental aspects of mechanism design such as informed-principal problems, multidimensional design, and equivalence between mechanisms.

 

Project Members

 

Discussion papers (B01)

 

 Motivation

Many institutions, from parliaments to schools to hospitals to public regulators, face allocation problems in which utility is not easily transferable. To what extent should optimally designed institutions rely on giving monetary incentives? How can the private information of heterogeneous agents be optimally aggregated without monetary transfers? To solve such design problems, we have to go beyond the ordinal-utility framework of social-choice theory and develop appropriate cardinal-utility frameworks.  

Policy relevance

There are hot political debates on the role of monetary incentives in all areas of society. How is equality of opportunity related to the presence of monetary incentives in various institutions? Are current democratic decision procedures well-designed to properly aggregate private information? We plan to propose improvements of existing institutional designs as well as novel mechanisms. 

Project plan

Overarching questions  

  • Why money-free mechanisms?  
  • Which money-free mechanisms?  
  • Role of solution concept: Bayesian versus ex-post versus posterior.  

Optimal collective choice with single-peaked preferences on a tree 

  • What is the role of the Condorcet winner? Can the Condorcet winner be implemented with a dynamic voting procedure?  
  • What are the efficiency properties of the optimal mechanism in the large-population limit?   

Randomization in mechanism-design without money  

  • To what extent can probability serve as a quasi-money that makes utility transferable?  
    • For example, how to allocate an unpleasant job when agents are privately informed about their individual competence

The role of agents’ participation incentives  

  • The agents’ participation decisions can reveal information about their cardinal preferences that is difficult to get otherwise.  
    • For example, how to design quorum rules in voting procedures.  

Complex collective decisions

  • To what extent is it possible to use various dimensions of a collective decision as "quasi-money" to make utility somewhat transferable and therefore to adapt methods developed for design with money?  
  • Can first-best efficiency be achieved in the limit, when the number of dimensions goes to infinity?  
  • An immediate application of such models can be made to dynamic decisions, where one item is decided in each period.  

Technical issues  

  • Does the equivalence of Bayesian and ex-post implementation extend to settings with costly verification of private information and without monetary transfers?  
  • Develop techniques for analyzing mechanism-design by an informed principal in settings with interdependent values and possibly without monetary transfers.  
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