This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic “regime shifts.”

From equals to despots: the dynamics of repeated decision making in partnerships with private information

Satoshi Fukuda
2019

Abstract

This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic “regime shifts.”
2019
2019
Carrasco, Vinicius; Fuchs, William; Fukuda, Satoshi
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4020787
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