optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

almost budget balanced vcg mechanisms to assign multiple objects subsidy free vcg mechanisms assign p identical objects to n agents the efficiency loss is the largest ratio of budget surplus to efficient surplus over all profiles of non negative valuations the smallest efficiency loss l n p satisfies l n p l n n2 43n if pn is bounded away from 12 l n p converges to zero exponentially in n participation is voluntary in the optimal mechanism achieving l n p if p 1 but not if p 2 among voluntary mechanisms the optimal efficiency loss is not significantly larger than l n p if pn 12 but it does not converge to zero in n if pn 12

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

robust trading mechanisms we consider the problem of designing a trading institution for a single buyer and seller when their valuation of the good is private information it is shown that posted price mechanisms are essentially the only mechanisms such that each trader has a dominant strategy a posted price mechanism is one where a price is posted in advance and trade occurs if and only if all traders agree to trade

on the optimality of not allocating we show that the commitment to not allocate may be exploited by a seller social planner to increase the expected social surplus that can be achieved in the sale of an indivisible unit

efficient sequential assignment with incomplete information abstract we study the welfare maximizing assignment of several heterogeneous commonly ranked objects to impatient agents with privately known characteristics who arrive sequentially according to a poisson or renewal process there is a deadline after which no more objects can be allocated we first show that the dynamically efficient allocation characterized by albright albright s c 1974 optimal sequential assignments with random arrival times manage sci 21 1 60 67 is implementable by the dynamic version of vcg mechanism we then obtain several properties of the welfare maximizing policy using stochastic dominance measures of increased variability and majorization arguments we also propose redistribution mechanisms that 1 implement the efficient allocation 2 satisfy individual rationality 3 never run a budget deficit 4 may run a budget surplus that vanishes asymptotically

games of fair division abstract we consider the problem of fairly allocating an indivisible good to one of several agents equally entitled to it when monetary compensations to the others are possible our primary normative concept is no envy first we show that there is no non manipulable selection from the no envy solution then we study the direct revelation games associated with subsolutions of the no envy solution the set of equilibrium allocations of any one of them coincides with the set of envy free allocations for the true preferences journal of economic literature classification numbers c72 d63 d7l d82

convergence to efficiency in a simple market with incomplete information a model of trade with m buyers and m sellers is considered in which price is set to equate revealed demand and supply in a bayesian nash equilibrium each trader acts not as a price taker but instead misrepresents his true demand supply to influence price in his favor this causes inefficiency we show that in any equilibrium the amount by which a trader misreports is o 1 m and the corresponding inefficiency is o 1 m2 the indeterminacy and the inefficiency that is caused by the traders bargaining behavior in small markets thus rapidly vanishes as the market increases in size

strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

voting and optimal provision of a public good in this paper we study the optimal provision of a costly public good using an average efficiency criterion for every fixed cost we identify a quota mechanism as the optimal mechanism among those that are dominant incentive compatible deficit free and kind moreover we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms in particular this mechanism dominates all vcg pivotal mechanisms

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

what money canʼt buy efficient mechanism design with costly signals i study the ex ante efficient allocation of a set of quality heterogeneous objects to a number of heterogeneous risk neutral agents agents have independent private values which represent the maximum cost they are willing to sustain to obtain an object of unitary quality the designer faces a trade off between allocative efficiency and cost of screening because the cost sustained is wasted the optimal mechanism ranks agents based on their marginal contribution to social surplus and distributes objects to higher ranked agents the ranking is independent of the scarcity of objects or the extent of their heterogeneity if the hazard rates of the distributions of values are increasing agents are ranked according to their expected values if hazard rates are decreasing and agents are symmetric the objects are allocated to the agents that sustain the highest costs in general optimal mechanisms combine both pooling and screening of values

worst case optimal redistribution of vcg payments in multi unit auctions abstract for allocation problems with one or more items the well known vickrey clarke groves vcg mechanism aka clarke mechanism generalized vickrey auction is efficient strategy proof individually rational and does not incur a deficit however it is not strongly budget balanced generally the agents payments will sum to more than 0 we study mechanisms that redistribute some of the vcg payments back to the agents while maintaining the desirable properties of the vcg mechanism our objective is to come as close to budget balance as possible in the worst case for auctions with multiple indistinguishable units in which marginal values are nonincreasing we derive a mechanism that is optimal in this sense we also derive an optimal mechanism for the case where we drop the non deficit requirement finally we show that if marginal values are not required to be nonincreasing then the original vcg mechanism is worst case optimal

a solomonic solution to the problem of assigning a private indivisible good a benevolent planner wishes to assign an indivisible private good to n claimants each valuing the object differently individuals have quasi linear preferences therefore the possibility of transfers is allowed a second best efficient mechanism is a strategy proof and anonymous mechanism that is not pareto dominated by another strategy proof and anonymous mechanism in this context we identify three conditions that are necessary and together with voluntary participation sufficient for a mechanism to be second best efficient this set includes mechanisms that destroy the good at certain profiles for domains comprising two individuals we provide an explicit characterization of the family of second best efficient mechanisms

competition in the water industry the paper discusses competition in the water industry in the uk with the focus on product market competition water has traditionally been seen as an industry characterized by regional or local natural monopoly with franchising and contracting out yardstick competition and capital market competition being feasible but not direct competition policy proposals for i inset appointments ii common carriage and iii cross border competition are assessed the effect of potential competition from inset appointments has been the introduction of quantity discounts for large users in practice the threat of competition is likely to make tariffs more cost reflective and there will probably be little effect on average tariff levels copyright 1997 by oxford university press

robust auctions for revenue via enhanced competition in robust auctions for revenue via enhanced competition t roughgarden i talgam cohen and q yan revisit the classic bulow klemperer result this result compares the revenues of two well know

collusive bidder behavior at single object second price and english auctions models of collusive bidder behavior at single object second price and english auctions are provided the ind ependent private values model is generalized to permit the formulatio n of coalitions and a strategic response by the auctioneer cooperati ve strategies are found to be dominant in these models coalitions of any size are viable and the payoff to each member increases with th e size of the coalition in addition the collusive strategies of the coalition represent a noncooperative equilibrium the optimal respon se of the auctioneer is to establish a reserve price that is a functi on of the coalition s size these and other features of the model are found to be consistent with the essential features of actual behavio r copyright 1987 by university of chicago press

implementation of reduced form auctions a geometric approach an auction is a mechanism for allocating a single indivisible object to one of several competing bidders the winner is the bidder who is awarded the object the rules of the auction specify two functions the first is the probability with which a bidder wins as a function of everyone s bids the second is the payment each bidder makes to the seller as a function of all the bids and whether or not he wins for instance a first price auction awards the object to the highest bidder with probability one providing there are no tie bids the winner pays his bid and the losers pay nothing the bidders in an auction differ significantly these differences are captured by the bidder s type a type may be the bidder s personal valuation of the object for sale his degree of risk aversion or perhaps his information about the object maskin and riley 1984 discuss a number of different economically meaningful examples of bidder types from the viewpoint of the seller and the other bidders each bidder s type is a random variable in this analysis we confine attention to auctions in which the types are independently and identically distributed according to a known probability distribution the revelation principle asserts that every auction is strategically equivalent to an auction in which bidders bid by announcing their type and no bidder has any incentive to lie such an auction is called an incentive compatible direct auction we will confine our attention to the probability functions for direct auctions and let the incentive compatibility conditions restrict the payment functions each bidder can compute the probability that he wins conditional on his own type by averaging over the types of the other bidders the function relating a bidder s type to his probability of winning is the reduced form of the auction the literature on optimal auctions usually addresses the problem of maximizing expected revenue for the seller for this purpose all the relevant information about the probability function of an auction is contained in its reduced form it is the reduced form that determines each bidder s behavior and hence the seller s expected revenue in a symmetric auction each bidder s reduced form is identical so that expected revenue is a functional defined on reduced forms which are functions of one variable namely types this makes the seller s problem somewhat tractable to design an auction a seller must be able to recognize a reduced form and recover the underlying auction reduced forms satisfy an intuitive feasibility condition given a set of types the

nigerian consumer attitudes toward foreign and domestic products the nigerian consumer obsession with foreign made goods has had a detrimental effect on the domestic manufacturing industry this paper uses conjoint analysis to investigate the importance of a product s country of manufacture relative to other attributes in the nigerian consumer choice it was found that the country of manufacture is significantly more important than price and other product attributes in consumer preference nigerian consumers have a negative image of the made in nigeria label rating it lower than labels from more economically developed countries additional analyses indicate that the superior reliability and technological advancement of foreign products are the most important correlates of the nigerian consumer s likelihood to purchase foreign products implications for foreign marketers domestic governments and domestic manufacturers are discussed

level k mechanism design non equilibrium models of choice e g level k reasoning have significantly different sometimes more accurate predictions in games than does nash equilibrium when it comes to the maximal set of functions that are implementable in mechanism design however they turn out to have similar implications focusing on single valued rules we discuss the role and implications of different behavioural anchors arbitrary level 0 play and prove a level k revelation principle if a function is level k implementable given any level 0 play it must obey a slight weakening of standard strict incentive constraints further the same condition is also sufficient for level k implementability although the role of specific level 0 anchors is more controversial for the sufficiency argument nonetheless our results provide tight characterizations of level k implementable functions under a variety of level 0 play including truthful uniform and atomless anchors

country of origin effects for uni national and bi national products this study examines the effects of country of origin and brand name cues on consumer evaluations of uni national and bi national products and estimates the perceived values of such cues from personal interviews with a regional quota sample of household residents the study found the salience of country of origin in product evaluations under within subject experimental design finally managerial implications are discussed in regards to international branding and sourcing strategies

polling mechanisms and the demand revelation problem we consider a revelation mechanism for the production of public goods a sample of consumers is drawn at random each member of the sample is asked to reveal her his preferences agents are subjected to transfers of the groves class and any surplus of taxes collected on sampled agents is redistributed to non sampled agents this polling mechanism is non parametric revealing in dominant strategies budget balanced and approximately efficient if the consumer population is large when applied to a public good with exclusion this mechanism in combination with consumer free mobility yields approximately optimal allocations

almost budget balanced mechanisms with scalar bids for allocation of a divisible good abstract this paper is about allocation of an infinitely divisible good to several rational and strategic agents the allocation is done by a social planner who has limited information because the agents valuation functions are taken to be private information known only to the respective agents we allow only a scalar signal called a bid from each agent to the social planner yang and hajek yang s hajek b 2007 vcg kelly mechanisms for allocation of divisible goods adapting vcg mechanisms to one dimensional signals ieee journal on selected areas in communications 25 6 1237 1243 and johari and tsitsiklis johari r tsitsiklis j n 2009 efficiency of scalar parameterized mechanisms operations research 57 4 823 839 proposed a scalar strategy vickrey clarke groves ssvcg mechanism with efficient nash equilibria we consider a setting where the social planner desires minimal budget surplus example situations include fair sharing of internet resources and auctioning of certain public goods where revenue maximization is not a consideration under the ssvcg framework we propose a mechanism that is efficient and comes close to budget balance by returning much of the payments back to the agents in the form of rebates we identify a design criterion for almost budget balance impose feasibility and voluntary participation constraints simplify the constraints and arrive at a convex optimization problem to identify the parameters of the rebate functions the convex optimization problem has a linear objective function and a continuum of linear constraints we propose a solution method that involves a finite number of constraints and identify the number of samples sufficient for a good approximation

the optimality of a simple market mechanism strategic behavior in a finite market can cause inefficiency in the allocation and market mechanisms differ in how successfully they limit this inefficiency a method for ranking algorithms in computer science is adapted here to rank market mechanisms according to how quickly inefficiency diminishes as the size of the market increases it is shown that trade at a single market clearing price in the k double auction is worst case asymptotic optimal among all plausible mechanisms evaluating mechanisms in their least favorable trading environments for each possible size of the market the k double auction is shown to force the worst case inefficiency to zero at the fastest possible rate

mechanism design by an informed principal private values with transferable utility we provide a solution to the informed principal problem in the independent private values setting with monetary transfers the principal s private information creates signaling considerations that may distort the implemented allocation we show that there is no distortion all principal types implement an allocation that is optimal for the principal ex ante before he she learns his her type as an application we consider settings with linear utility for bilateral exchange in which the principal is one of the traders the solution is a combination of a participation fee a buy out option for the principal and a resale stage with posted prices

optimal allocation of an indivisible good abstract in this paper we consider the problem of allocating an indivisible good efficiently between two agents with monetary transfers we focus on allocation mechanisms that are dominant strategy incentive compatible when agents types are private information inefficiency of an allocation mechanism may come from two sources misallocation of the indivisible good and an imbalanced budget unfortunately as green and laffont 1979 demonstrate no allocation mechanism can always overcome both kinds of inefficiency we identify allocation mechanisms that maximize the expected total utilities of agents and characterize optimal mechanisms for a large class of agents type distributions for strongly regular type distributions we show that the optimal mechanisms must be budget balanced they are either fixed price mechanisms or option mechanisms the result may not hold for other type distributions for certain type distributions we show that optimal mechanisms are hybrids of vickrey clarke groves mechanisms and budget balanced mechanisms

the demand revealing process to distribute the surplus contrary to established frequently repeated proposition that its budget surplus cannot be distributed to taxpayers without disturbing the incentive compatibility of the demand revealing process drp the surplus can be distributed by reapplying the key concept of the drp there will remain an aggregate refund error that in a bayesian sense is random with zero mean and which vanishes o 1 n 2 as the economy becomes large through replication to dela with income effects when one does not restrict the domain of the mechanism to separable utility functions i suggest a variation of the drp that preserves its incentive compatibility wgeb n is finite

bounds on the welfare loss from moral hazard with limited liability we study a principal agent problem with discrete outcome and effort level spaces the principal and the agent are risk neutral and the latter is subject to limited liability quantifying welfare loss as the ratio between the first best social welfare and that arising from the principal s optimal pay for performance contract we provide simple parametric bounds for problem instances with moral hazard relying on that we compute the worst case welfare loss ratio among all problem instances with a fixed number of effort and outcome levels as a function of the number of possible effort levels and the likelihood ratio evaluated at the highest outcome as extensions we look at linear contracts and at cases with multiple identical tasks our work constitutes an initial attempt to quantify the losses arising from moral hazard when the agent is subject to limited liability and shows that these losses are non negligible in the worst case

does competition spur innovation the case of yardstick competition this paper investigates the effect of yardstick competition on firms incentives to invest in cost reducing innovations we show that an increase in the intensity of yardstick competition for which we provide a natural measure increases the incentives to innovate

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

the effect of false name bids in combinatorial auctions new fraud in internet auctions we examine the effect of false name bids on combinatorial auction protocols false name bids are bids submitted by a single bidder using multiple identifiers such as multiple e mail addresses the obtained results are summarized as follows 1 the vickrey clarke groves vcg mechanism which is strategy proof and pareto efficient when there exists no false name bid is not falsename proof 2 there exists no false name proof combinatorial auction protocol that satisfies pareto efficiency 3 one sufficient condition where the vcg mechanism is false name proof is identified i e the concavity of a surplus function over bidders

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

optimal vcg mechanisms to assign multiple bads for the problem of assigning economic bads for example costly tasks or undesirable objects vickrey clarke groves vcg mechanisms achieve efficient allocations via money transfers however they can produce arbitrarily large budget surpluses or deficits we construct a performance index for a vcg mechanism to measure its budget surplus and deficit in the worst case using this index we develop mechanisms whose surpluses or deficits vanish as the number of participants increases for both cases of bads and goods we find that individual rationality creates an asymmetry between surplus and deficit particularly in the case of bads when the number of agents is large enough a minute amount of deficit can replace unit surplus to achieve a budget balance for the case of economic goods unit surplus can only be replaced with unit deficit regardless of individual rationality this result shows that the model with bads differs fundamentally from the model with goods

characterizations of the pivotal mechanism the pivotal mechanism is strategyproof demand revealing in public decision problems where preferences are quasi linear moreover no agent has an incentive to free ride by withdrawing from the committee and consuming whatever decision is taken by the remaining agents strategyproofness plus no free ride characterize the pivotal mechanism this mechanism is anonymous and neutral yet together strategyproofness anonymity and neutrality do not characterize it they will however if reasonable lower or upper bounds on final utilities are imposed our last characterization of the pivotal mechanism uses the no free ride axiom and two mild monotonicity properties but not strategyproofness

design of yardstick competition and consumer prices experimental evidence abstract in this paper we analyze the effect of the design of yardstick competition on consumer prices by means of a theoretical analysis as well as an economic experiment we compare four different designs the uniform yardstick the unweighted uniform yardstick the discriminatory yardstick and the best practice yardstick the effect of a specific design on prices depends on two separate mechanisms one which affects the incentive power to increase productive efficiency and another which affects the risk of collusion we show theoretically that for the best practice yardstick which is widely applied in several industries in a number of countries these two mechanisms point in the same direction high prices which is confirmed by the experiment both the theoretical analysis as well as the economic experiment show that the discriminatory yardstick results in lower prices than the unweighted uniform yardstick the theory however does not give a clear answer on the relative performance of the discriminatory versus the weighted uniform yardstick in the experimental analysis we find that the advantage of the discriminatory yardstick in terms of giving incentives to improve productive efficiency exceeds the disadvantage of a relatively higher risk of collusion this conclusion appears to be robust for different degrees of heterogeneity of the industry hence the discriminatory yardstick yields the lowest prices for consumers

matching product catgeory and country image perceptions a framework for managing country of origin effects the study of country of origin coo effects examines how consumers perceive products emanating from a particular country this study examines coo in terms of the fit between countries and product categories a framework is suggested which matches the importance of product category dimensions with the perceived image of the country of origin along the same dimensions such matches or mismatches can be either favorable or unfavorable managers can use product country match information to assess consumers purchase intentions and assist them in managing their product s coo data collected from consumers in ireland mexico and the united states demonstrate the product country match framework and its strategic implications

a dominant strategy double auction a double auction mechanism that provides dominant strategies for both buyers and sellers is analyzed this mechanism satisfies the 1n convergence to efficiency of the buyer s bid double auction in addition the mechanism always produces full information first best prices the inefficiency arises because the least valuable profitable trade may be prohibited by the mechanism the mechanism has an oral implementation utilizing bid and asked prices

maximizing social welfare in congestion games via redistribution it is well known that efficient use of congestible resources can be achieved via marginal pricing however payments collected from the agents generate a budget surplus which reduces social welfare we show that an asymptotically first best solution in the number of agents can be achieved by the appropriate redistribution of the budget surplus back to the agents

country of origin effects in developed and emerging markets exploring the contrasting roles of materialism and value consciousness despite growing evidence about differences in the attitudes and behaviors of consumers in emerging and developed markets there is little research on the differences in country of origin coo effects on their evaluation behavioral intentions bis and actual purchase of imported products this paper introduces a new conceptual framework incorporating consumer ethnocentrism cet materialism mat and value consciousness vc to hypothesize several differences in the influence of coo effects on consumers from developed and emerging markets a web based study with 1752 consumers in four countries representing two developed markets the uk and the usa and two emerging markets china and india shows significant differences in the moderating influence of cet mat and vc on the effects of coo on the evaluations and bis for a fictitious passenger car brand and on the actual choice of car brands owned by them the findings highlight the importance of looking beyond cet at other relevant psychographic variables to understand the differences in motivations underlying consumer perceptions and behavior towards imported products

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

evolutionary implementation in a public goods game abstract we consider implementation of the efficient state in a large population public goods game due to positive externalities the efficient state is different from the nash equilibrium of the game we apply a transfer scheme equal to the externality in the game the externality adjusted public goods game is a potential game with a unique nash equilibrium which is the efficient state of the original game it is also a continuous strategy aggregative game we introduce the best response dynamic for such aggregative potential games to show evolutionary implementation agents converge to the efficient state under this dynamic in the externality adjusted game we extend this result to other prominent evolutionary dynamics the pure externality price scheme however causes a budget deficit a modification of this scheme solves this problem while evolutionarily implementing efficiency

eliciting preferences to assign positions and compensation abstract we describe strategy proof rules for economies where an agent is assigned a position e g a job plus some of a divisible good for the 2 agent 2 position case we derive a robust characterization for the multi agent position case many arbitrary such rules exist so we consider additional requirements by also requiring coalitional strategy proofness or nonbossiness the range of a solution is restricted to the point that such rules are not more complex than those for the shapley scarf housing model no divisible good third we show that essentially only constant solutions are immune to manipulations involving bribes finally we demonstrate a conflict between efficiency and strategy proofness the results extend to models without externalities in which agents share positions journal of economic literature classification numbers c72 d70

egalitarian equivalence under asymmetric information abstract we propose a definition of egalitarian equivalence that extends pazner and schmeidler s 1978 concept to environments with incomplete information if every feasible allocation rule can be implemented by an incentive compatible mechanism as for instance in the case of non exclusive information then interim egalitarian equivalence and interim incentive efficiency remain compatible as they were under complete information when incentive constraints are more restrictive on the other hand the two criteria may become incompatible

home country bias in product evaluation the complementary roles of economic and socio psychological motives consumers often are positively biased in their evaluations of domestic products vs foreign alternatives this study establishes economic and socio psychological motives for this home country bias building on social identity theory this paper shows that home country bias is in part driven by a need for self enhancement this influence is stronger for consumers who identify more strongly with their own country and is complementary to the effect of consumer ethnocentrism which provides an economic motivation for home country bias the framework is supported in empirical studies conducted in the netherlands and in the usa

informed seller with taste heterogeneity consider a seller with a single indivisible good facing a buyer whose willingness to pay depends on his privately known taste and on product characteristics privately known by the seller what selling procedure can arise as an equilibrium of the game in which the seller strategically chooses mechanisms conditional on his information we characterize the set of equilibrium outcomes and establish that ex ante revenue maximizing mechanisms are in this set there is generally a continuum of revenue ranked equilibrium outcomes focusing on the revenue maximizing equilibrium we show that the seller in general benefits from private information and does not benefit from committing to a disclosure or a certification technology we also provide conditions under which the privacy of the seller s information does not affect revenue

approximately optimal auctions for correlated bidders abstract we consider the design of dominant strategy incentive compatible revenue maximizing auctions for an indivisible good when bidders values are drawn from a correlated distribution for independent distributions myerson showed that the optimal auction for risk neutral bidders remains incentive compatible regardless of bidders risk attitudes we show that for correlated distributions the same is true when only two bidders are involved whereas for more bidders randomization can generate strictly more revenue however for risk neutral bidders we show this gain is never more than a 5 3 factor this is a consequence of two results of independent interest 1 a polynomial time derandomization of auctions for two bidders 2 a polynomial time computable deterministic auction that 5 3 approximates the optimal revenue extractable from risk neutral bidders moreover we give a polynomial time algorithm to compute optimal auctions for a constant number of bidders and for any number of bidders we give polynomial time algorithms with approximation factors arbitrarily close to 3 2

optimal allocation without transfer payments abstract often an organization or government must allocate goods without collecting payment in return this may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs in this paper we find an optimal mechanism to allocate goods when the designer is benevolent while the designer cannot charge agents he can receive a costly but wasteful signal from them we find conditions for cases in which ignoring these costly signals by giving agents equal share or using lotteries if the goods are indivisible is optimal in other cases those that send the highest signal should receive the goods however we then show that there exist cases where more complicated mechanisms are superior also we show that the optimal mechanism is independent of the scarcity of the goods being allocated

sharing the cost of a public good an incentive constrained axiomatic approach we study the problem of provision and cost sharing of a public good in large economies where exclusion complete or partial is possible we search for incentive constrained efficient allocation rules that display fairness properties population monotonicity says that an increase in population should not be detrimental to anyone demand monotonicity states that an increase in the demand for the public good in the sense of a first order stochastic dominance shift in the distribution of preferences should not be detrimental to any agent whose preferences remain unchanged under suitable domain restrictions we give an explicit characterization of all incentive constrained efficient allocation rules we then show that there exists a unique incentive constrained efficient and demand monotonic allocation rule the so called serial rule in the binary public good case the serial rule is also the only incentive constrained efficient and population monotonic rule

robust collusion with private information the game theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars without resorting to either impatience symmetry restrictions inability to communicate or failure to optimize this paper introduces a new explanation that relies on none of these assumptions if the cartel s member firms have private information about their costs price wars can be optimal in the face of complexity specifically equilibria that are robust to pay off irrelevant disruptions of the information environment generically cannot attain or approximate efficiency an optimal robust equilibrium must allocate market shares inefficiently and may call for price wars under certain conditions for a two firm cartel cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium that optimal equilibria are inefficient generically applies not only to collusion games but also to the entire separable pay off environment a class that includes most typical economic models copyright 2012 oxford university press

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

bayesian and dominant strategy implementation in the independent private values model we prove in the standard independent private values model that the outcome in terms of interim expected probabilities of trade and interim expected transfers of any bayesian mechanism can also be obtained with a dominant strategy mechanism

optimal voting rules we study dominant strategy incentive compatible dic and deterministic mechanisms in a social choice setting with several alternatives the agents are privately informed about their preferences and have single crossing utility functions monetary transfers are not feasible we use an equivalence between deterministic dic mechanisms and generalized median voter schemes to construct the constrained efficient optimal mechanism for an utilitarian planner optimal schemes for other welfare criteria such as say a rawlsian maximin can be analogously obtained

the economics of missing markets information and games part 1 out of equilibrium beliefs and out of equilibrium behaviour david m kreps the role of common knowledge assumptions in game theory adam brandenburger and eddie dekel repeated games a survey h sabourian information dynamics and equilibrium frank hahn part 2 the economics of parallel research partha dasgupta strategy variables and theories of industrial organization christopher doyle bargaining theory david canning imperfect competition and international trade k gatsios part 3 missing markets consequences and remedies david m newberry rational expectations information and asset markets margaret bray decision making in the presence of risk mark j machina part 4 theoretical modelling of banks and bank runs luca anderlini optimal multi unit auctions eric maskin and john riley labour contract theory tim worrall part 5 intertemporal general equilibrium models timothy j kehoe sunspots stephen burnell an introduction to nonlinear dynamics and its application to economics david kelsey part 6 some micro and macro implications of inventories j p thomas keynes s liquidity preference theory a suggested reinterpretation louis makowski

optimal private good allocation the case for a balanced budget abstract in an independent private value auction environment we are interested in strategy proof mechanisms that maximize the agents residual surplus that is the utility derived from the physical allocation minus transfers accruing to an external entity we find that under the assumption of an increasing hazard rate of type distributions an optimal deterministic mechanism never extracts any net payments from the agents that is it will be budget balanced specifically optimal mechanisms have a simple posted price or option form in the bilateral trade environment we obtain optimality of posted price mechanisms without any assumption on type distributions

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

collusion proof yardstick competition abstract this paper analyses the incentives for collusion among firms when an industry is regulated by means of yardstick competition the central assumption is that firms must write collusive side contracts before the revelation of private correlated information and are unable to communicate later the analysis shows that collusion is costly to society only if firms can commit to side payments third best collusion proof yardstick competition entails more less distortion of efficiency for low productivity high productivity firms than second best yardstick competition the benefit of yardstick competition vanishes in the limit as correlation of private information becomes near perfect

generalized reduced form auctions a network flow approach we develop a network flow approach for characterizing interim allocation rules that can be implemented by ex post allocations our method can be used to characterize feasible interim allocations in general multi unit auctions where agents face capacity constraints both ceilings and floors applications include a variety of settings of practical interest ranging from individual and group specific capacity constraints set aside sale partnership dissolution and government license reallocation

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

quantifying the social welfare loss in moral hazard models abstract the main aim of this paper is to measure the social welfare loss for a continuous moral hazard model when a set of minimal assumptions are fulfilled by using a new approach we are able to reproduce the results of balmaceda balseiro correa and stier moses 2010 pertaining to the social welfare loss for discrete and continuous models respectively previous studies rely on the validity of the first order approach at the expense of strong assumptions in particular the convexity of the distribution function condition while we do not make such a restrictive assumption in our developments in addition we obtain new bounds for the social welfare loss that are both tight and easy to compute

a cross cultural study of made in concepts cross cultural studies of the perceptions of countries of origin by industrial users have been few but they are important because of their managerial implications for multinational firms this study uses data obtained from american and french directors of purchasing of major industrial firms concerning their perceptions of 5 major made in concepts after the data were corrected for response bias results show both how the respondents perceive the made in concepts and the differences between the american and french perceptions

collusion under yardstick competition an experimental study abstract the effectiveness of relative performance evaluation schemes such as yardstick competition can be undermined by collusion the degree to which the regulated agents manage to collude will be affected by the particulars of the scheme we hypothesize that in a repeated game setting schemes will be more prone to collusion the smaller are the rents to the agents in case they behave noncooperatively we illustrate the relevance of this hypothesis by means of an economic experiment in which we compare the efficiency of two performance evaluation schemes

on the trade off between deficit and inefficiency and the double auction with a fixed transaction fee in many trading environments any incentive compatible and individually rational market mechanism will be either inefficient or will run a deficit we prove that as the market size m gets large for any fixed surplus or deficit x m times the minimal absolute inefficiency converges to c x where c is essentially a quadratic function of textitx we introduce a new mechanism the double auction with a fixed transaction fee by choosing the size of the fee appropriately any level of deficit or surplus can be implemented and the resulting mechanisms achieve the above bound corollaries include an asymptotic version of the myerson satterthwaite impossibility theorem a description of the minimal subsidy required to implement the efficient trading rule a characterization of the minimal inefficiency obtainable with budget balanced market mechanisms recommendations on the optimal organization of trade and insights on the effects of taxation

venture capitalists decision policies across three countries an institutional theory perspective this paper examines the influence of economic institutions upon venture capitalists vcs decision policies we conducted policy capturing experiments on 119 vcs across three countries representing distinct economic institutions us mature market economy south korea emerging economy and china transitional economy results show that vcs in rules based market economies us rely upon market information to a greater extent than vcs in emerging economies korea and chinese vcs transitional economy weight human capital factors more heavily than either us or korean vcs findings suggest that although professional institutions may dictate which information is included in vc decision policies the extent to which that information is emphasized is determined partly by the economic institution in which the decision maker operates journal of international business studies 2007 38 691 708 doi 10 1057 palgrave jibs 8400291

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

balanced ranking mechanisms abstract in the private values single object auction model we construct a satisfactory mechanism a symmetric dominant strategy incentive compatible and budget balanced mechanism the mechanism converges to efficiency at an exponential rate it allocates the object to the highest valued agent with more than 99 probability provided there are at least 14 agents it is also ex post individually rational we show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms since achieving efficiency through a dominant strategy incentive compatible and budget balanced mechanism is impossible in this model our results illustrate the limits of this impossibility

product market competition and organizational slack under profit target contracts in a framework a la martin 1993 we introduce a common component in the managers private information in order to address three related questions what is the impact of contracts that reward managers on the basis of realized profits on firms productive and allocative efficiency relative to cost target contracts how do these contracts shape the relationship between competition and organizational slack can we then explain the existing evidence of an inverted u shaped relationship between competition and cost reducing activities as documented in aghion et al aghion p bloom n blundell r griffith r howitt p competition and innovation an inverted u relationship the quarterly journal of economics 120 pp 701 728 2005 we show that profit target contracts introduce a horizontal contractual externality between the competing firms that mitigates organizational slack and improves upon productive efficiency relative to cost plus mechanisms moreover when executive compensations are conditioned on profits an inverted u shaped relationship between product market competition and managerial effort obtains finally we also show that when contractual instruments are endogenous i e when shareholders can choose between profit and cost target rules the equilibrium with profit target contracts always exists and is the only one that survives to standard refinements