This paper examines the problem of how to design incentive-compatible mechanisms in environments in which the agents’private information evolves stochastically over time and in which decisions have to be made in each period. The environments we consider are fairly general in that the agents’ types are allowed to evolve in a non-Markov way, decisions are allowed to a¤ect the type distributions a...

We study mechanisms for an allocation of goods among agents, where agents have no incentive to lie about their true values (incentive compatible) and for which no agent will seek to exchange outcomes with another (envy-free). Mechanisms satisfying each requirement separately have been studied extensively, but there are few results on mechanisms achieving both. We are interested in those allocat...

In McLean and Postlewaite (Econometrica 56, 1992, p. 2421), we analyzed pure exchange economies with asymmetrically informed agents. We defined a notion of informational size and showed that, when the aggregate information of all agents resolves nearly all the uncertainty regarding the state of nature, the conflict between incentive compatibility and (ex post) efficiency can be made small if ag...

We examine the design of incentive-compatible screening mechanisms for dynamic environments in which the agents’types follow a (possibly non-Markov) stochastic process, decisions may be made over time and may a¤ect the type process, and payo¤s need not be time-separable. We derive a formula for the derivative of an agent’s equilibrium payo¤ with respect to his current type in an incentive-compa...

The conflict between Pareto optimality and incentive compatibility, that is, the fact that some Pareto optimal (efficient) allocations are not incentive compatible is a fundamental fact in information economics, mechanism design and general equilibrium with asymmetric information. This important result was obtained assuming that the individuals are expected utility maximizers. Although this ass...

The rational expectations equilibrium (REE), as introduced in Radner (1979) in a general equilibrium setting à la Arrow-Debreu-Mckenzie, often fails to have normative properties such as universal existence, incentive compatibility and efficiency. We resolve those problems by providing a new model which makes the standard REE a desirable solution concept. In particular, we consider an asymmetric...

Traffic regulation in public and private wireless LANs face a number of significant challenges, particularly in commercial networks where there is a need for efficient regulation of bursty transactional applications, support for bandwidth reservation services while inhibiting bandwidth hogging by mobile devices, and incentivizing user cooperation. In this paper, we take a new approach to solvin...

Incentives play an important role in (security and IT) risk management of a large-scale organization with multiple autonomous divisions. This paper presents an incentive mechanism design framework for risk management based on a game-theoretic approach. The risk manager acts as a mechanism designer providing rules and incentive factors such as assistance or subsidies to divisions or units, which...

Peer-to-peer complementary currencies can be powerful tools for promoting exchanges and building sustainable relationships among selfish peers on the Internet. i-WAT[10] is a proposed such currency based on the WAT System, a polycentric, real-life complementary currency using WAT tickets as its media of exchange. Participants spontaneously issue and circulate the tickets as needed, whose values...

The paper extends Diamond’s (1984) analysis of financial contracting with information asymmetry ex post and endogenous ”bankruptcy penalties” to allow for risk aversion of the borrower. The optimality of debt contracts, which Diamond obtained for the case of risk neutrality, is shown to be nonrobust to the introduction of risk aversion. This contrasts with the costly state verification literatu...