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Mechanism Design with Hidden Information

7 June 2016 at 12:00 PM - 1:15 PM

Room 207, Campus on Vial Romania, 32

Speaker: Thomas J. Rivera, HEC, Paris and Luiss, Rome

Abstract: Consider a general mechanism design problem where players have private information and actions that cannot be perfectly contracted upon. This paper investigates whether a communication equilibrium of this design problem remains robust if players have access to some extraneous signals that are informative with respect to the true state of the world. Namely, is the communication equilibrium chosen by the naive designer – who believes that the players do not receive any such additional information – robust to the introduction to such an information structure, even when it is very imprecise? What I show is that generically a communication equilibrium is robust to additional extraneous information if and only if whenever a player's incentive constraints are binding, then the mechanism reveals more information to that player about the true state of the world, through their suggested action, than the information structure does. Further, I show that generically a communication equilibrium is robust to any information structure of arbitrarily small precision if and only if the mechanism perfectly reveals the true state of the world to any player of some type whose incentive constraints are binding. Abstract: