We are grateful to a co-editor and three anonymous referees, as well as participants of numerous conferences and workshops, for useful comments and suggestions. Piotr Dworczak, Nikolay Dudchenko, and Xiaowei Yu provided excellent research assistance. Financial support from the Toulouse Network for Information Technology and the National Science Foundation (Grants SES-0351500, SES-0318447, and SES-0961693) is gratefully acknowledged.
An Efficient Dynamic Mechanism
Version of Record online: 13 NOV 2013
© 2013 The Econometric Society
Volume 81, Issue 6, pages 2463–2485, November 2013
How to Cite
Athey, S. and Segal, I. (2013), An Efficient Dynamic Mechanism. Econometrica, 81: 2463–2485. doi: 10.3982/ECTA6995
- Issue online: 13 NOV 2013
- Version of Record online: 13 NOV 2013
- Manuscript received February, 2007; final revision received June, 2013.
- Dynamic mechanism design;
- dynamic incentive compatibility;
- perfect Bayesian equilibrium;
- budget balance;
- Markov games with private information;
- folk theorems with private
This paper constructs an efficient, budget-balanced, Bayesian incentive-compatible mechanism for a general dynamic environment with quasilinear payoffs in which agents observe private information and decisions are made over countably many periods. First, under the assumption of “private values” (other agents' private information does not directly affect an agent's payoffs), we construct an efficient, ex post incentive-compatible mechanism, which is not budget-balanced. Second, under the assumption of “independent types” (the distribution of each agent's private information is not directly affected by other agents' private information), we show how the budget can be balanced without compromising agents' incentives. Finally, we show that the mechanism can be made self-enforcing when agents are sufficiently patient and the induced stochastic process over types is an ergodic finite Markov chain.