Dynamic Mechanism Design: A Myersonian Approach
Name
Pavan-Segal-Toikka-Dec-2013.pdf
Size
534.13 KB
Format
Adobe PDF
Checksum (MD5)
149393547a0df1a1c72bae44d34c2cfe
Author(s)
Toikka, Juuso
Pavan, Alessandro
Segal, Ilya
Date Issued
March 2014
Journal
Econometrica
Publisher
The Econometric Society
Citation
Pavan, Alessandro, Ilya Segal, and Juuso Toikka. “Dynamic Mechanism Design: A Myersonian Approach.” Econometrica 82, no. 2 (2014): 601–653.
Version
Author's final manuscript
Abstract
We study mechanism design in dynamic quasilinear environments where private information arrives over time and decisions are made over multiple periods. We make three contributions. First, we provide a necessary condition for incentive compatibility that takes the form of an envelope formula for the derivative of an agent's equilibrium expected payoff with respect to his current type. It combines the familiar marginal effect of types on payoffs with novel marginal effects of the current type on future ones that are captured by “impulse response functions.” The formula yields an expression for dynamic virtual surplus that is instrumental to the design of optimal mechanisms and to the study of distortions under such mechanisms. Second, we characterize the transfers that satisfy the envelope formula and establish a sense in which they are pinned down by the allocation rule (“revenue equivalence”). Third, we characterize perfect Bayesian equilibrium-implementable allocation rules in Markov environments, which yields tractable sufficient conditions that facilitate novel applications. We illustrate the results by applying them to the design of optimal mechanisms for the sale of experience goods (“bandit auctions”).
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.3982/ECTA10269
