Informationally Simple Incentives

39 Pages Posted: 4 Feb 2020 Last revised: 22 Sep 2020

See all articles by Simon Gleyze

Simon Gleyze

Paris School of Economics (PSE); Université Paris I Panthéon-Sorbonne

Agathe Pernoud

Stanford University - Department of Economics

Date Written: January 12, 2020

Abstract

We consider a mechanism design setting in which agents can acquire costly information on their preferences as well as others’. The choice of the mechanism generates informational incentives as it affects what information is acquired before play begins. A mechanism is informationally simple if agents have no incentive to learn about others’ preferences. This property is of interest for two reasons: First, the extended game has an equilibrium in dominant strategies only if it is informationally simple. Second, this endogenizes an "independent private value" property of the interim information structure. Our main result is that a mechanism is informationally simple only if it is de facto dictatorial. This holds for generic environments and any smooth cost function which satisfies an Inada condition. Hence even interim strategy-proof mechanisms incentivize agents to learn about others, and do not admit dominant strategies at the ex-ante stage. Moreover, the Independent Private Value assumption is unlikely to arise endogenously, though we show that full surplus extraction is infeasible.

Keywords: Mechanism Design, Information Acquisition, Simplicity, Privacy, Independent Private Values

JEL Classification: C72, D01, D82

Suggested Citation

Gleyze, Simon and Pernoud, Agathe, Informationally Simple Incentives (January 12, 2020). Available at SSRN: https://ssrn.com/abstract=3517922 or http://dx.doi.org/10.2139/ssrn.3517922

Simon Gleyze

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

HOME PAGE: http://simongleyze.com

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Agathe Pernoud (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

HOME PAGE: http://web.stanford.edu/~agathep

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