Robust Implementation in Direct Mechanisms

Abstract

A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages leads to outcomes that agree with the social choice function for all beliefs at every type profile. In an interdependent value environment with single crossing preferences, we identify a contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism. Strict ex post incentive compatibility and the contraction property are also necessary for robust implementation in any mechanism, including indirect ones.

The contraction property requires that the interdependence is not too large. In a linear signal model, the contraction property is equivalent to an interdependence matrix having all eigenvalues smaller than one.

Keywords: Mechanism design, Implementation, Robustness, Common knowledge, Interim equilibrium, Iterative deletion, Direct mechanism

JEL Classification: C79, D82