Mechanism Design without Games

Abstract

This paper identi…es mechanisms that are implementable even when the planner cannot commit to the rules of the mechanism. The standard approach is to require mechanism to be robust against redesign. This often leads nonexistence of acceptable mechanisms. The novelty of this paper to require robustness against redesigns that are themselves robust against redesigns that are themselves robust against.... That is, we allow the planner to costlessly redesign the mechanism any number of times, and identify redesign strategies that are both optimal and dynamically consistent. A mechanism design strategy that credibly implements a direct mechanism after all histories is shown to exist. The framework is applied to bilateral bargaining situations. We demonstrate that a welfare maximizing second best mechanism can be implemented even without commitment.