Hard evidence and mechanism design

This paper addresses how hard evidence can be incorporated into mechanismdesign analysis. Two classes of models are compared: (a) ones in which evidentiary decisions are accounted for explicitly, and (b) ones in which the players make abstract declarations of their types. Conditions are provided under which versions of these models are equivalent. The paper also addresses whether dynamic mechanisms are required for Nash implementation in settings with hard evidence. The paper shows that static mechanisms suffice in the setting of “evidentiary normality” and that, in a more general environment, one can restrict attention to a class of three-stage dynamic mechanisms. JEL Classification: C70, D74, K10. ∗The authors thank Jean-Jacques Laffont, Joel Sobel, Lars Stole, the anonymous associate editor, and the two anonymous referees for their generous comments. The paper originated as a section of Bull and Watson (2001). †Department of Economics, Florida International University, Miami, Florida 33199. Email: [email protected]. ‡Department of Economics, University of California, San Diego, La Jolla, California 92093-0508. Internet: http://weber.ucsd.edu/∼jwatson/.