Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 310
We analyze the optimal design of dynamic mechanisms in the absence of transfers. The designer uses future allocation decisions to elicit private information. Values evolve according to a two-state Markov chain. We solve for the optimal allocation rule, which permits a simple implementation. Unlike with transfers, efficiency decreases over time, and both immiseration and its polar opposite are possible long-run outcomes. Considering the limiting environment in which time is continuous, we demonstrate that persistence hurts.