46 Pages Posted: 28 Dec 2014
Date Written: December 26, 2014
Some of the basic results and insights of the literature on mechanism design are presented. In that literature game theoretic reasoning is used to model social institutions as varied as voting systems, auctions, bargaining protocols, and methods for deciding on public projects. A theme that comes out of the literature is the difficulty of finding mechanisms compatible with individual incentives that simultaneously result in efficient decisions (maximizing total welfare), the voluntary participation of the individuals, and balanced transfers (taxes and subsidies that net to zero across individuals). This is explored in the context of various incentive compatibility requirements, public and private goods settings, small and large societies, and forms of private information held by individuals.
Keywords: Mechanism, Mechanism Design, Dominant Strategy, Public Goods, Auction, Bargaining, Bayesian Equilibrium, Bayesian Incentive Compatibility, Revelation Principle, Efficiency, Individual Rationality, Balance, Strategy-Proof, Direct Mechanism, Social Choice Function, Single-Peaked Preferences, Impleme
JEL Classification: C71, D71, D72, D78
Suggested Citation: Suggested Citation