Mechanism design by creditability

Abstract

This paper attends to the problem of a mechanism designer seeking to influence the outcome of a strategic game based on her creditability. The mechanism designer offers additional payments to the players depending on their mutual choice of strategies in order to steer them to certain decisions. Of course, the mechanism designer aims at spending as little as possible and yet implementing her desired outcome. We present several algorithms for this optimization problem both for singleton target strategy profiles and target strategy profile regions. Furthermore, the paper shows how a bankrupt mechanism designer can decide efficiently whether strategy profiles can be implemented at no cost at all. Finally, risk-averse players and dynamic games are examined. © Springer-Verlag Berlin Heidelberg 2007.