Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/150299 
Year of Publication: 
2016
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 11 [Issue:] 3 [Publisher:] The Econometric Society [Place:] New Haven, CT [Year:] 2016 [Pages:] 971-1004
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
This paper studies mechanism design when agents are maxmin expected utility maximizers. A first result gives a general necessary condition for a social choice rule to be implementable. The condition combines an inequality version of the standard envelope characterization of payoffs in quasilinear environments with an approach for relating agents' maxmin expected utilities to their objective expected utilities under any common prior. The condition is then applied to give an exact characterization of when efficient trade is possible in the bilateral trading problem of Myerson and Satterthwaite (1983), under the assumption that agents know little beyond each other's expected valuation of the good (which is the information structure that emerges when agents are uncertainty about each other's ability to acquire information). Whenever efficient trade is possible, it may be implemented by a relatively simple double auction format. Sometimes, an extremely simple reference price rule can also implement efficient trade.
Subjects: 
Mechanism design
maxmin
ambiguity aversion
bilateral trade
Myerson-Satterthwaite
JEL: 
D81
D82
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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