efficient investments in the implementation problem 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

on the robustness of equilibrium refinements abstract the philosophy of equilibrium refinements is that the analyst if he knows things about the structure of the game can reject some nash equilibria as unreasonable the word know in the preceding sentence deserves special emphasis if in a fixed game the analyst can reject a particular equilibrium outcome but he cannot do so for games arbitrarily close by then he may have second thoughts about rejecting the outcome we consider several notions of distance between games and we characterize their implications for the robustness of equilibrium refinements

nash implementation a complete characterization the authors extend e maskin s results on nash implementation first they establish a condition that is both necessary and sufficient for nash implementability if there are three or more agents the case covered by maskin s sufficiency result second and more important they examine the two agent case for which there existed no general sufficiency results the two agent model is the leading case for applications to contracting and bargaining for this case too they establish a condition that is both necessary and sufficient the authors use their theorems to derive simpler sufficiency conditions that are applicable in a wide variety of economic environments copyright 1990 by the econometric society

exit options in incomplete contracts with asymmetric information this paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information one party the seller makes an unverifiable quality choice and the other party the buyer has private information about its valuation a simple exit option contract which allows the buyer to refuse trade achieves the first best in the benchmark cases where either quality is verifiable or the buyer s valuation is public information but when unverifiable and asymmetric information are combined exit options induce inefficient pooling and lead to a particularly simplecontract inefficient pooling is unavoidable also under the most general form of contracts which make trade conditional on the exchange of messages between the parties indeed simple exit option contracts are optimal if random mechanisms are ruled out

environment and institutions a complex dynamical systems approach abstract environmental issues are characterised by uncertainty and problems of cooperation societal responses to such challenges are institutions beliefs norms relationships property rights agencies etc we discuss here a bottom up approach to the emergence of institutions such as beliefs and norms in pollution issues and agri environmental policy implementation the models are based on networks of automata bayesian updating and coupled map lattices they exhibit clear organisational properties and regime transitions according to their parameters the behaviours predicted by these models often differ from the predictions of standard economy based on unbounded rationality

two remarks on the property rights literature we first point out that the recent property rights literature is based on three assumptions 1 that contracts are always subject to renegotiation 2 that the exercise of a property right confers a private benefit and 3 that parties are risk neutral building on hart moore 1999 we provide conditions under which an optimal contract consists of nothing more than an assignment of property rights we also examine the robustness of some of the literature s standard predictions about asset ownership to the introduction of mechanisms for eliciting parties ex post willingness to pay for the assets such as options or financial markets to illustrate the issue we revisit the hart moore 1990 proposition that joint ownership is suboptimal and argue that ownership by a single party is dominated by joint ownership with put options

simple mechanisms and preferences for honesty we consider full implementation in complete information environments when agents have an arbitrarily small preference for honesty we offer a condition called separable punishment and show that when it holds and there are at least two agents any social choice function can be implemented by a simple mechanism in two rounds of iterated deletion of strictly dominated strategies

efficiency despite mutually payoff relevant private information the finite case individuals have or observe partly private information they independently choose acts possibly including messages the center may also act individuals utilities may depend on all acts and information including others private information are there incentives depending only on public information that make desired behavior a bayesian equilibrium assume incentive payments are separable and fully transferable appropriate incentives exisit either if the center s information depends stochastically however slightly on all relevant private information or if individuals relative valuations of acts however divergent are not too dissimilarly affected by different states of nature more generally one gives necessary and sufficient conditions for existence whenever the strategy profile asks agents to reveal all private knowledge relevant to their beliefs about the center s information

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

subgame perfect implementation under information perturbations we consider the robustness of extensive form mechanisms to deviations from common knowledge about the state of nature which we refer to as information perturbations first we show that even under arbitrarily small information perturbations the moore repullo mechanism does not yield even approximately truthful revelation and that in addition the mechanism has sequential equilibria with undesirable outcomes more generally we prove that any extensive form mechanism is fragile in the sense that if a non maskin monotonic social objective can be implemented with this mechanism then there are arbitrarily small information perturbations under which an undesirable sequential equilibrium also exists finally we argue that outside options can help improve efficiency in asymmetric information environments and that these options can be thought of as reflecting ownership of an asset

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

rational behavior with payoff uncertainty abstract the iterated deletion of weakly dominated strategies has been advanced as a necessary requirement for rational play however this requirement relies on the assumption that the players have no doubts about their opponents payoffs we show that once such doubts are introduced all that can be justified by an appeal to rationality is one round of deletion of weakly dominated strategies followed by iterated deletion of strategies that are strongly dominated this extends the fudenberg kreps and levine j econ theory 12 1988 354 380 study of the robustness of nash equilibrium refinements to the robustness of solution concepts based only on rationality our results also clarify the relationship between various notions of what it means for payoff uncertainty to be small

government size productivity and economic growth the post war experience a substantial portion of the slowdown in productivity and economic growth in the seventies and eighties cannot be ascribed to traditional factors we have found one potential additional source the dramatic growth in the scale of government employing a theoretical model of output growth we derive an equation which controls for cyclical influences and which permits distinguishing the effects of government growth on the economic base from the effects on the economic growth rate we find that increases in the scale of government lead to statistically significant reductions in both the economic base and the economic growth rate in addition we find that most of this government induced retardation of economic activity arises from reductions in productivity rather that reductions in the employment of factors

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

incomplete contracts and the theory of the firm what have we learned over the past 25 years incomplete contracts and the theory of the firm what have we learned over the past 25 years