Essays in Mechanism Design

Yunan Li, University of Pennsylvania


In this thesis, I study mechanism design problems in environments where the information necessary to make decisions is affected by the actions of principal or agents. The first chapter considers the problem of a principal who must allocate a good among a finite number of agents, each of whom values the good. Each agent has private information about the principal's payoff if he receives the good. There are no monetary transfers. The principal can inspect agents' reports at a cost and punish them, but punishments are limited because verification is imperfect or information arrives only after the good has been allocated for a while. I characterize an optimal mechanism featuring two thresholds. Agents whose values are below the lower threshold and above the upper threshold are pooled, respectively. If the number of agents is small, then the pooling area at the top of value distribution disappears. If the number of agents is large, then the two pooling areas meet and the optimal mechanism can be implemented via a shortlisting procedure. The fact that the optimal mechanism depends on the number of agents implies that small and large organizations should behave differently. The second chapter considers the problem of a principal who wishes to distribute an indivisible good to a population of budget-constrained agents. Both valuation and budget are an agent's private information. The principal can inspect an agent's budget through a costly verification process and punish an agent who makes a false statement. I characterize the direct surplus-maximizing mechanism. This direct mechanism can be implemented by a two-stage mechanism in which agents only report their budgets. Specifically, all agents report their budgets in the first stage. The principal then provides budget-dependent cash subsidies to agents and assigns the goods randomly (with uniform probability) at budget-dependent prices. In the second stage, a resale market opens, but is regulated with budget-dependent sales taxes. Agents who report low budgets receive more subsidies in their initial purchases (the first stage), face higher taxes in the resale market (the second stage) and are inspected randomly. This implementation exhibits some of the features of some welfare programs, such as Singapore's housing and development board. The third chapter studies the design of ex-ante efficient mechanisms in situations where a single item is for sale, and agents have positively interdependent values and can covertly acquire information at a cost before participating in a mechanism. I find that when interdependency is low or the number of agents is large, the ex-post efficient mechanism is also ex-ante efficient. In cases of high interdependency or a small number of agents, ex-ante efficient mechanisms discourage agents from acquiring excessive information by introducing randomization to the ex-post efficient allocation rule in areas where the information's precision increases most rapidly.

Subject Area

Economics|Economic theory

Recommended Citation

Li, Yunan, "Essays in Mechanism Design" (2017). Dissertations available from ProQuest. AAI10266651.