Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282054 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
Discussion Paper No. 362
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
Abstract: 
This paper provides a micro-foundation for approximate incentive compatibility using ambiguity aversion. In particular, we propose a novel notion of approximate interim incentive compatibility, approximate local incentive compatibility, and establish an equivalence between approximate local incentive compatibility in a Bayesian environment and exact interim incentive compatibility in the presence of a small degree of ambiguity. We then apply our result to the implementation of efficient allocations. In particular, we identify three economic settings – including ones in which approximately efficient allocations are implementable, ones in which agents are informationally small, and large double auctions – in which efficient allocations are approximately locally implementable when agents are Bayesian. Applying our result to those settings, we conclude that efficient allocations are exactly implementable when agents perceive a small degree of ambiguity.
Subjects: 
approximate local incentive compatibility
ambiguity aversion
efficiency
informational size
modified VCG mechanism
double auction
Document Type: 
Working Paper

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