MICRO/THEORY: Efficient Mechanisms under Unawareness; Professor Burkhard SCHIPPER (University of California, Davis)

Abstract

We study the design of mechanisms under asymmetric awareness and asymmetric information. With limited awareness, an agent's message space is type-dependent because an agent cannot misrepresent herself as a type that she is unaware of. Nevertheless, we show that the revelation principle holds. The revelation principle is of limited use though because a mechanism designer is hardly able to commit to outcomes for type profiles of which he is unaware. Yet, the mechanism designer can at least commit to properties of social choice functions like efficiency given ex post awareness. Assuming quasi-linear utilities, private values, and welfare isotonicity in awareness, we show that if a social choice function is utilitarian ex post efficient, then it is implementable under pooled agents' awareness in conditional dominant strategies. That is, it is possible to reveal all asymmetric awareness among agents and implement the welfare maximizing social choice function in conditional dominant strategies without the need of the social planner being fully aware ex ante. To this end, we develop dynamic versions of the Groves and Clarke mechanisms along which true types are revealed and subsequently elaborated at endogenous higher awareness levels. We explore how asymmetric awareness affects budget balance and participation constraints.

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