Postl, Peter; (2004) Applied mechanism design. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

We use mechanism design techniques to analyze three novel problems. First, we study incentive contracts for information acquisition. In our setup, a principal must choose between two alternatives with unknown payoffs. An agent can find them out at a fixed cost per alternative. His effort and any information acquired are imobservable. The principal only observes the payoff of her chosen alternative, and hence the agent has the incentive to overstate cost by strategically finding out only one of the payoffs and lying about the other. We characterize sequential information acquisition procedures that can be delegated to the agent without granting him information rents. Second, we study a situation where two agents have to choose one of three alternatives. Their ordinal rankings of these alternatives are diametrically opposed and are common knowledge. Ex ante efficiency requires that they implement the alternative that is ranked second by both if and only if the sum of their von Neumann Morgen- stern utilities under this alternative is higher than under the two extreme options. Von Neumann Morgenstern utilities are privately observed types. We ask if there are incentive compatible mechanisms which elicit utilities and implement efficient decisions. We show that no such mechanisms exist if the distribution of agents' types has continuum support. Finally, we investigate if procurement procedures that simultaneously determine specification and price of a good can result in an inefficient specification choice. In our setup, two suppliers can produce a good in either of two specifications which are equally good for the buyer. Costs are interdependent and unknown at the time of bidding. Each supplier receives a cost signal per specification. While an efficient mechanism exists, it involves a higher expected payment for the good than a mechanism that selects a bidder on the basis of price alone, in which case there is a chance of obtaining the specification with the highest production cost.

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