Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2011

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RECIPROCAL RELATIONSHIPS AND MECHANISM DESIGN

Gorkem Celik*, Michael Peters

Date: 2011-05-14 10:15 am – 10:45 am
Last modified: 2011-04-09

Abstract


We study an incomplete information game in which players are involved in a reciprocal relationship that allows them to coordinate their actions by contracting among themselves. We model this as a competing mechanism game in which some of the players have the ability to write contracts. We characterize the set of outcome functions that can be supported as equilibrium in this enhanced game. We use our characterization to show that the set of supportable outcomes is bigger than the set of outcomes supported by a centralized mechanism designer who can o¤er mechanisms in which all players participate. The di¤erence is that the contracting game makes it possible for players to convey partial information about their type at the time they o¤er contracts. We also show how our solution relates to the collusion proofness ideas in (Laffont and Martimort 1997) and (Che and Kim 2006).