Behavioral Mechanism Design∗

This paper studies the mechanism design problem for the class of Bayesian environments where agents do care for the well-being of others. For these environments, we fully characterize interim efficient mechanisms and examine their properties. This set of mechanisms is compelling, since interim efficient mechanisms are the best in the sense that there is no other mechanism which generates unanimous improvement. For public good environments, we show that these mechanisms produce public goods closer to the efficient level of production as the degree of altruism in the preferences increases. For private good environments, we show that altruistic agents trade more often than selfish agents. JEL Classification Numbers: C72, D61, D64, H41.