• Open Access

Designing stable mechanisms for economic environments

Authors

  • Paul J. Healy,

    1. Department of Economics, The Ohio State University; healy.52@osu.edu
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  • Laurent Mathevet

    1. Department of Economics, University of Texas; lmath@mail.utexas.edu
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    • The authors thank Yaron Azrieli, Yan Chen, Vince Crawford, Federico Echenique, Guillaume Frechette, Matt Jackson, John Ledyard, Stephen Morris, Charlie Plott, William Sandholm, Steve Spear, Matt Van Essen, and Mark Walker for their helpful comments and conversations. Healy gratefully acknowledges the National Science Foundation for funding this research through Award SES-0847406.


Abstract

We study the design of mechanisms that implement Lindahl or Walrasian allocations and whose Nash equilibria are dynamically stable for a wide class of adaptive dynamics. We argue that supermodularity is not a desirable stability criterion in this mechanism design context, focusing instead on contractive mechanisms. We provide necessary and sufficient conditions for a mechanism to Nash-implement Lindahl or Walrasian allocations, show that these conditions are inconsistent with the contraction property when message spaces are one-dimensional, and then show how to use additional dimensions to achieve dynamic stability while gaining budget balance out of equilibrium.

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