Journal of Political Economy2014-10-22 6:03 PM

Mechanism Design with Communication Constraints

Abstract

We study mechanism design in a context where communicational constrains prevent the use of revelation mechanisms, and agents behave strategically. We examine a setting with multiple agents, each producing (or purchasing) a single dimensional output with single-dimensional cost (or valuation) parameter satisfying a standard single-crossing property. Necessary and sufficient conditions for Bayessian implementation are shown to maximize the Principals objective (with 'virtual' types replacing true types) subject to communication feasibility alone. This implies delegating production (or purchase) decisions to agents strictly dominates centralized decisions. Optimal communication protocols involve multiple rounds of communication in which agents simultaneously send binary messages, if communication costs depend on total time delay. They involve sequential reports when communication costs depend instead on the total number of information bits sent.

Keywords: communication, mechanism design auctions, decentralization, incentives, organizaitons


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Journal of Political Economy

One of the oldest and most prestigious journals in economics, the Journal of Political Economy has since 1892 presented significant research and scholarship in economic theory and practice.

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