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From equals to despots: The dynamics of repeated decision making in partnerships with private information

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2019-07
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Elsevier
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Abstract
This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic "regime shifts"
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Dictatorial mechanism, Dynamic bayesian mechanism design, Regime shifts, Renegotiation-proofness, Repeated collective decision making
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Carrasco, V., Fuchs, W., Fukuda, S. (2019). From equals to despots: The dynamics of repeated decision making in partnerships with private information. Journal of Economic Theory, 182, 402-432