Genericity and Robustness of Full Surplus Extraction

Authors

  • Yi-Chun Chen,

    1. Dept. of Economics, National University of Singapore, 117570, Singapore; ecsycc@nus.edu.sg
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  • Siyang Xiong

    1. Dept. of Economics, Rice University, Houston, TX 77005, U.S.A.; xiong@rice.edu
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    • We thank the editor and five anonymous referees for insightful comments which have greatly improved the paper. For their helpful comments and discussion, we also thank Tilman Börgers, Eddie Dekel, Jeff Ely, Eduardo Faingold, Songying Fang, Alia Gizatulina, Aviad Heifetz, Martin Hellwig, Jinwoo Kim, Maciej Kotowski, Takashi Kunimoto, Jihong Lee, Qingmin Liu, Xiao Luo, Claudio Mezzetti, Hervé Moulin, Daisuke Oyama, Wolfgang Pesendorfer, Marciano Siniscalchi, Yeneng Sun, Olivier Tercieux, Chih-Chun Yang, and the participants in seminars/conferences at Academia Sinica, Games 2012, the Kansas Workshop on Economic Theory, Rice University, Shanghai University of Finance and Economics, University of Tokyo, and the 11th and the 12th SAET Conferences. We also gratefully acknowledge financial support from National Science Foundation Grant SES-1227620 and Singapore Ministry of Education Academic Research Fund Tier 1. All remaining errors are our own.


Abstract

We study whether priors that admit full surplus extraction (FSE) are generic, an issue that becomes a gauge to evaluate the validity of the current mechanism design paradigm. We consider the space of priors on the universal type space, and thereby relax the assumption of a fixed finite number of types made by Crémer and McLean (1988). We show that FSE priors are topologically generic, contrary to the result of Heifetz and Neeman (2006) that FSE is generically impossible, both geometrically and measure-theoretically. Instead of using the BDP approach or convex combinations of priors adopted in Heifetz and Neeman (2006), we prove our genericity results by showing a robustness property of Crémer–McLean mechanisms.

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