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Subgame-Perfect Implementation Under Information Perturbations

Author

Listed:
  • Tercieux, Olivier
  • Aghion, Philippe
  • Fudenberg, Drew
  • Holden, Richard
  • Kunimoto, Takashi
Abstract
We consider the robustness of extensive form mechanisms to deviations from common knowledge about the state of nature, which we refer to as information perturbations. First, we show that even under arbitrarily small information perturbations the Moore-Repullo mechanism does not yield (even approximately) truthful revelation and that in addition the mechanism has sequential equilibria with undesirable outcomes. More generally, we prove that any extensive form mechanism is fragile in the sense that if a non-Maskin monotonic social objective can be implemented with this mechanism, then there are arbitrarily small information perturbations under which an undesirable sequential equilibrium also exists. Finally, we argue that outside options can help improve efficiency in asymmetric information environments, and that these options can be thought of as reflecting ownership of an asset. JEL Codes: C72, D23, D78, D82

Suggested Citation

  • Tercieux, Olivier & Aghion, Philippe & Fudenberg, Drew & Holden, Richard & Kunimoto, Takashi, 2012. "Subgame-Perfect Implementation Under Information Perturbations," Scholarly Articles 11224965, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:11224965
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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