Wu, Haoyang (2018): The revelation principle does not always hold when strategies of agents are costly.
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Abstract
The revelation principle asserts that for any indirect mechanism and equilibrium, there is a corresponding direct mechanism with truth as an equilibrium. Although the revelation principle has been a fundamental theorem in the theory of mechanism design for a long time, so far the costs related to strategic actions of agents have not been fully discussed. In this paper, we propose the notion of profit function, and claim that the definitions of Bayesian Nash equilibrium of mechanism and Bayesian incentive compatibility should be based on the profit function instead of the utility function when strategies of agents are costly. After then, we derive two key results: (1) The strategic action of each agent in a direct mechanism is just to report a type, and each agent does not need to spend any strategic cost occurred in any indirect mechanism; (2) When strategies of agents are costly, the proof of revelation principle is wrong. We construct a simple labor model to show that a Bayesian implementable social choice function is not truthfully implementable, which contradicts the revelation principle.
Item Type:  MPRA Paper 

Original Title:  The revelation principle does not always hold when strategies of agents are costly 
Language:  English 
Keywords:  Revelation principle; Game theory; Mechanism design. 
Subjects:  D  Microeconomics > D7  Analysis of Collective DecisionMaking > D71  Social Choice ; Clubs ; Committees ; Associations D  Microeconomics > D8  Information, Knowledge, and Uncertainty 
Item ID:  89257 
Depositing User:  Haoyang Wu 
Date Deposited:  03 Oct 2018 16:24 
Last Modified:  26 Sep 2019 11:28 
References:  1. R. Myerson, Incentive compatibility and the bargaining problem, Econometrica, vol.47, 6173, 1979. 2. R. Myerson, Optimal coordination mechanisms in generalized principalagent problems, Journal of Mathematical Economics, vol.10, 6781, 1982. 3. A. MasColell, M.D. Whinston and J.R. Green, Microeconomic Theory, Oxford University Press, 1995. 4. Y. Narahari et al, Game Theoretic Problems in Network Economics and Mechanism Design Solutions, Springer, 2009. 5. M. Spence, Job Market Signaling. Quarterly Journal of Economics, vol.87, 355374, 1973. 6. N. Kartik, Strategic Communication with Lying Costs. The Review of Economic Studies, vol.76, 13591395, 2009. 7. A. Kephart and V. Conitzer, The revelation principle for mechanism design with reporting cost, In Proceedings of the ACM Conference on Electronic Commerce (EC), Maastricht, The Netherlands, 2016. 8. J. Green and J.J. Laffont, Partially verifiable information and mechanism design. Review of Economic Studies, vol.53, 447456, 1986. 9. L. Yu, Mechanism design with partial verification and revelation principle. Autonomous Agents and MultiAgent Systems, vol.22, 217223, 2011. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/89257 
Available Versions of this Item

The revelation principle does not always hold when strategies of agents are costly. (deposited 06 Aug 2018 13:04)

The revelation principle does not always hold when strategies of agents are costly. (deposited 19 Sep 2018 01:05)

The revelation principle does not always hold when strategies of agents are costly. (deposited 03 Oct 2018 16:24)
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 The revelation principle does not always hold when strategies of agents are costly. (deposited 18 Oct 2018 13:40)

The revelation principle does not always hold when strategies of agents are costly. (deposited 03 Oct 2018 16:24)
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The revelation principle does not always hold when strategies of agents are costly. (deposited 19 Sep 2018 01:05)