Mechanism Design with Narratives

38 Pages Posted: 27 Oct 2020

See all articles by Matthias Lang

Matthias Lang

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2020

Abstract

Individuals use narratives as rationales or justifications to make their claims more convincing. I provide a general framework for partial verifiability based on narratives. Narratives give many reasons and arguments. The receiver derives the message’s meaning by aggregating these reasons; her private information tells her whether some potential reasons support the sender’s claims. Therefore, the receiver detects misreports with positive probability. Narratives flexibly allow for different degrees of partial verifiability and allow using the revelation principle. Considering mechanism design as an example, I prove that narratives are so powerful to implement efficient trade in the canonical bilateral-trade setting.

Keywords: narrative, communication, partial verifiability, mechanism design, bilateral trade

JEL Classification: D810, D820, D860

Suggested Citation

Lang, Matthias, Mechanism Design with Narratives (2020). CESifo Working Paper No. 8502, Available at SSRN: https://ssrn.com/abstract=3680359 or http://dx.doi.org/10.2139/ssrn.3680359

Matthias Lang (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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