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Mechanism design with level-k types: theory and an application to bilateral trade
[working paper]
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Wissenschaftszentrum Berlin für Sozialforschung gGmbH
Abstract This paper studies mechanism design under the level-k solution concept. The first result gives a general necessary condition for a social choice rule to be level-k implementable. In some environments, this necessary condition is equivalent to Bayesian incentive compatibility, making level-k implemen... view more
This paper studies mechanism design under the level-k solution concept. The first result gives a general necessary condition for a social choice rule to be level-k implementable. In some environments, this necessary condition is equivalent to Bayesian incentive compatibility, making level-k implementation more restrictive than Bayesian implementation. The second result shows that this is not a general implication. In the bilateral trade environment ex post efficient trade is always possible under level-k implementation. Further, ex post efficient trade is possible in a mechanism that is robust to different specifications of beliefs about the levels of reasoning of others and to any specification of beliefs about payoffs.... view less
Classification
National Economy
Document language
English
Publication Year
2017
City
Berlin
Page/Pages
29 p.
Series
Discussion Papers / Wissenschaftszentrum Berlin für Sozialforschung, Forschungsschwerpunkt Markt und Entscheidung, Abteilung Ökonomik des Wandels, SP II 2017-303
Handle
http://hdl.handle.net/10419/157375
Status
Published Version
Licence
Deposit Licence - No Redistribution, No Modifications