Dynamic mechanism design: An elementary introduction

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Abstract

This paper introduces dynamic mechanism design in an elementary fashion. We first examine optimal dynamic mechanisms: We find necessary and sufficient conditions for perfect Bayesian incentive compatibility and formulate the optimal dynamic mechanism problem. We next examine efficient dynamic mechanisms: We establish the uniqueness of Groves mechanism and investigate budget balance of the dynamic pivot mechanism in some detail for a bilateral trading environment. This introduction reveals that many results and techniques of static mechanism design can be straightforwardly extended and adapted to the analysis of dynamic settings.

Original languageEnglish
Pages (from-to)92-121
Number of pages30
JournalJournal of Economic Theory and Econometrics
Volume32
Issue number2
Publication statusPublished - 2021 Jun

Bibliographical note

Funding Information:
∗I thank an anonymous reviewer for helpful comments and suggestions. This research was supported by Basic Science Research Program through the National Research Foundation of Korea (NRF) funded by the Ministry of Education (2021R1|1A4A01059254).

Publisher Copyright:
© 2021, Korean Econometric Society. All rights reserved.

Keywords

  • Budget Balance
  • Efficient Mechanism
  • Incentive Compatibility
  • Markov Process
  • Optimal Mechanism

ASJC Scopus subject areas

  • Economics and Econometrics

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