Informationally Simple Incentives
39 Pages Posted: 4 Feb 2020 Last revised: 22 Sep 2020
Date Written: January 12, 2020
We consider a mechanism design setting in which agents can acquire costly information on their preferences as well as others’. The choice of the mechanism generates informational incentives as it affects what information is acquired before play begins. A mechanism is informationally simple if agents have no incentive to learn about others’ preferences. This property is of interest for two reasons: First, the extended game has an equilibrium in dominant strategies only if it is informationally simple. Second, this endogenizes an "independent private value" property of the interim information structure. Our main result is that a mechanism is informationally simple only if it is de facto dictatorial. This holds for generic environments and any smooth cost function which satisfies an Inada condition. Hence even interim strategy-proof mechanisms incentivize agents to learn about others, and do not admit dominant strategies at the ex-ante stage. Moreover, the Independent Private Value assumption is unlikely to arise endogenously, though we show that full surplus extraction is infeasible.
Keywords: Mechanism Design, Information Acquisition, Simplicity, Privacy, Independent Private Values
JEL Classification: C72, D01, D82
Suggested Citation: Suggested Citation