Mechanism Design with Limited Commitment
55 Pages Posted: 3 Dec 2018 Last revised: 25 Aug 2020
Date Written: August 24, 2020
We develop a tool akin to the revelation principle for mechanism design with limited commitment. We identify a canonical class of mechanisms rich enough to replicate the outcomes of any equilibrium in a mechanism-selection game between an uninformed designer and a privately informed agent. A cornerstone of our methodology is the idea that a mechanism should encode not only the rules that determine the allocation, but also the information the designer obtains from the interaction with the agent. Therefore, how much the designer learns, which is the key tension in design with limited commitment, becomes an explicit part of the design. We show how this insight can be used to transform the designer's problem into a constrained optimization problem: To the usual truthtelling and participation constraints, one must add the designer's sequential rationality constraint.
Keywords: mechanism design, limited commitment, revelation principle, information design
JEL Classification: D82, D86
Suggested Citation: Suggested Citation