Dynamic Mechanisms Without Money

69 Pages Posted: 11 Feb 2015

See all articles by Johannes Horner

Johannes Horner

Yale University - Cowles Foundation

Yingni Guo

Northwestern University

Date Written: February 10, 2015

Abstract

We analyze the optimal design of dynamic mechanisms in the absence of transfers. The designer uses future allocation decisions as a way of eliciting private information. Values evolve according to a two-state Markov chain. We solve for the optimal allocation rule, which admits a simple implementation. Unlike with transfers, efficiency decreases over time, and both immiseration and its polar opposite are possible long-run outcomes. Considering the limiting environment in which time is continuous, we show that persistence hurts.

Keywords: Mechanism design, Principal-Agent, Token mechanisms

JEL Classification: C73, D82

Suggested Citation

Horner, Johannes and Guo, Yingni, Dynamic Mechanisms Without Money (February 10, 2015). Cowles Foundation Discussion Paper No. 1985, Available at SSRN: https://ssrn.com/abstract=2563005 or http://dx.doi.org/10.2139/ssrn.2563005

Johannes Horner (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Yingni Guo

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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