Applied Mechanism Design

California Institute Of Technology, Pasadena CA

Investigators

Abstract

This project conducts theoretical and experimental research in an area of applied mechanism design, i.e., contracting solutions to externality problems. Many economic problems such as the prisoner's dilemma, the tragedy of the commons, and free riding on a public good have the property that there is a unique efficient outcome but the Nash equilibrium outcomes are inefficient. We propose a theoretical investigation of when types of simple pre-play contracts, such as "matching contributions," can emerge as an endogenous mechanisms and resolve the inefficiency. This will help to predict in which economic environments individuals will reach an efficient outcome, and what type of legal and informational requirements are necessary to do so.