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Song, Yangwei (28. December 2022): Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence. Collaborative Research Center Transregio 190, Discussion Paper No. 362 [PDF, 460kB]

Abstract

This paper provides a micro-foundation for approximate incentive compati- bility using ambiguity aversion. In particular, we propose a novel notion of ap- proximate 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 pres- ence of a small degree of ambiguity. We then apply our result to the implementa- tion 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 al- locations are exactly implementable when agents perceive a small degree of ambiguity.

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