Working Paper: CEPR ID: DP16048
Authors: Mariann Ollár; Antonio Penta
Abstract: We consider mechanism design environments in which agents commonly know that others’ types areidentically distributed, but without assuming that the actual distribution is common knowledge, northat it is known to the designer (common knowledge of identicality). We study partial and full implementation, as well as robustness. First, we characterize the transfers which are incentive compatible under common knowledge of identicality, and provide necessary andsufficient conditions for partial implementation. Second, we characterize the conditions under whichfull implementation is possible via direct mechanisms, as well as the transfer schemes which achieve fullimplementation whenever it is possible. We do this by pursuing a network approach, which is based onthe observation that the full implementation problem in our setting can be conveniently transformedinto one of designing a network of strategic externalities, subject to suitable constraints which aredictated by the incentive compatibility requirements entailed by common knowledge of identicality. This approachenables us to uncover a fairly surprising result: the possibility of full implementation is characterizedby the strength of the preference interdependence of the two agents with the least amount of preferenceinterdependence, regardless of the total number of agents and their preferences. Finally, we study robustness properties of the implementing transfers with respect to misspecification of agents’ preferences and lower orders beliefs in rationality.
Keywords: moment conditions; robust; full implementation; rationalizability; interdependent values; identical but unknown distributions; uniqueness; strategic externalities; spectral radius; loading transfers; equal-externality transfers
JEL Codes: D62; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structure of transfers (F16) | ability to achieve partial implementation (D52) |
| strength of preference interdependence among agents (D71) | possibility of full implementation (D78) |
| loading transfers (F16) | full implementation (Y20) |
| loading transfers (F16) | fastest contraction of best-reply sets (C69) |
| equal-externality transfers (H23) | full implementation (Y20) |
| preference interdependence (D11) | efficacy of various transfer schemes (F16) |