Dynamic Mechanisms Without Money
69 Pages Posted: 11 Feb 2015
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: Suggested Citation