Econometrica Vol. 68 No. 2 2000
Mechanism Design with Collusion and Correlation
Abstract
In a public good environment with positively correlated types, we characterize optimal mechanisms when agents have private information and can enter collusive agreements. First, we prove a weak-collusion-proof principle according to which there is no restriction for the principal in offering weak-collusion-proof mechanisms. Second, with this principle, we characterize the set of allocations that satisfy individual and coalitional incentive constraints. The optimal weakly collusion-proof mechanism calls for distortions away from first-best efficiency obtained without collusion. Allowing collusion restores continuity between the correlated and the uncorrelated environments. When the correlation becomes almost perfect, first-best efficiency is approached. Finally, the optimal collusion-proof mechanism is strongly ratifiable.
- DOI
- 10.1111/1468-0262.00111
- Volume
- 68
- Issue
- 2
- Pages
- 309-342
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref