Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162269
Authors: 
Lee, Joosung
Year of Publication: 
2017
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 27.2017
Abstract: 
We study mechanisms for environments in which only some of the agents are directly connected to a mechanism designer and the other agents can participate in a mechanism only through the connected agents' referrals. In such environments, the mechanism designer and agents may have different interest in varying participants so that agents strategically manipulate their preference as well as their network connection to avoid competition or congestion; while the mechanism designer wants to elicit the agents' private information about both preferences and network connections. As a benchmark for an efficient mechanism, we re-define a VCG mechanism. It is incentive compatible and individually rational, but it generically runs a deficit as it requires too much compensation for referrals. Alternatively as a budget-surplus mechanism, we introduce a multilevel mechanism, in which each agent is compensated by the agents who would not be able to participate without her referrals. Under a multilevel mechanism, we show that fully referring one's acquaintances is a dominant strategy and agents have no incentive to under-report their preference if the social welfare is submodular.
Subjects: 
Mechanism Design
Referral Program
Reward Scheme
VCG Mechanism
Multilevel Mechanism
Incentive Compatibility
Budget Feasibility
JEL: 
D82
D71
C72
Document Type: 
Working Paper

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