Mechanism Design with Limited Commitment

55 Pages Posted: 3 Dec 2018 Last revised: 25 Aug 2020

See all articles by Laura Doval

Laura Doval

Columbia University

Vasiliki Skreta

University of Texas at Austin - Department of Economics; University College London

Date Written: August 24, 2020

Abstract

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

Doval, Laura and Skreta, Vasiliki, Mechanism Design with Limited Commitment (August 24, 2020). Available at SSRN: https://ssrn.com/abstract=3281132 or http://dx.doi.org/10.2139/ssrn.3281132

Laura Doval

Columbia University ( email )

420 West 118th Street
New York, NY 10027
United States

HOME PAGE: http://www.laura-doval.com

Vasiliki Skreta (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

HOME PAGE: http://vskreta.wixsite.com/vskreta

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://vskreta.wixsite.com/vskreta

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