Dynamic Mechanisms with Verification

12 Pages Posted: 19 Feb 2019

See all articles by Markos Epitropou

Markos Epitropou

University of Pennsylvania, Department of Electrical and Systems Engineering

Rakesh Vohra

University of Pennsylvania - Department of Economics

Date Written: February 18, 2019

Abstract

We consider a principal who allocates an indivisible object among a finite number of agents who arrive on-line, each of whom prefers to have the object than not. Each agent has access to private information about the principal's payoff if he receives the object. The decision to allocate the object to an agent must be made upon arrival of an agent and is irreversible. There are no monetary transfers but he principal can inspect agents' reports at a cost and punish them. A novelty of this paper is a reformulation of this dynamic problem as a compact linear program. Using the formulation we characterize the form of the optimal mechanism and reduce the dynamic version of the inspection problem with identical distributions to an instance of the secretary problem with one fewer secretary and a modified value distribution. This reduction also allows us to derive a prophet inequality for the dynamic version of the inspection problem.

Keywords: Dynamic mechanism design, stopping problems, costly verification

JEL Classification: C61, D44, D82

Suggested Citation

Epitropou, Markos and Vohra, Rakesh, Dynamic Mechanisms with Verification (February 18, 2019). PIER Working Paper No. 19-002. Available at SSRN: https://ssrn.com/abstract=3337074 or http://dx.doi.org/10.2139/ssrn.3337074

Markos Epitropou

University of Pennsylvania, Department of Electrical and Systems Engineering ( email )

Room 306, Moore Bldg, 200 South 33rd Street
Philadelphia, PA 19104
United States

Rakesh Vohra (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

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